Q3 2024 Acuity Brands Inc Earnings Call
Good morning, and welcome to the acuity brands fiscal 2024 third quarter earnings call.
Operator: Good morning, and welcome to the Acuity Brands fiscal 2024 third quarter earnings report. At this time, all participants are in a... After the speaker's presentation, the company will conduct a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Charlotte McLaughlin, Vice President of Investor Relations. Charlotte, please go ahead.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the Speakers' presentation, the company will conduct a question and answer session.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to Charlotte Mclaughlin, Vice President of Investor Relations Charlotte. Please go ahead.
Charlotte McLaughlin: Thank you.
Charlotte McLaughlin: Thank you. Good morning, and welcome to the Acuity Brands Fiscal 2024 Third Quarter Earnings Call. On the call with me this morning are Neil Ashe, our Chairman, President, and Chief Executive Officer, and Karen Holcom, our Senior Vice President and Chief Financial Officer. Today's call will include updates on our strategic progress and on our fiscal 2024 third quarter performance. There will be an opportunity for Q&A at the end of this call. As a reminder, some of our comments today may be forward-looking statements. We intend these forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as detailed on slide 2 of the accompanying presentation.
Charlotte McLaughlin: Good morning, and welcome to the acuity brands fiscal 2024 third quarter earnings call.
Speaker Change: On the call with me this morning on the latch, our chairman President and Chief Executive Officer.
And Karen <unk>, our senior Vice President and Chief Financial Officer.
Speaker Change: Today's call will include updates on our strategic progress.
Speaker Change: In our fiscal 2024 third quarter performance.
Speaker Change: There will be an opportunity for Q&A at the end of this call.
Speaker Change: As a reminder, some of our comments today may be forward looking statements.
We intend these forward looking statements to be covered by the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Speaker Change: As detailed on slide two of the accompanying presentation.
Charlotte McLaughlin: Reconciliations, a certain non-gap financial metric, with their corresponding gap measures are available in our 2024 third quarter earnings release and Supplemental Presentations, both of which are available on our Investor Relations website at www.investors.acuitybrands.com. Thank you for your interest in Acuity Brands. I will now turn the call over to Neil Ashe.
Speaker Change: Reconciliations of certain non-GAAP financial metrics with their corresponding GAAP measures are available in our 2024 third quarter earnings release.
Speaker Change: And supplemental presentation.
Speaker Change: Both of which are available on our Investor Relations website at Www Dot investors does acuity brands Dot com.
Speaker Change: Thank you for your interest in acuity brands I will now turn the call over to Neil Ash.
Neil M. Ashe: Thank you, Charlotte, and thank you all for joining us this morning. In our fiscal 2024 third quarter, we delivered solid results. We increased our adjusted operating profit, Adjusted Operating Profit Margin, and Adjusted Diluted Earnings per Share.
Neil M. Ashe: Thank you Charlotte and thank you all for joining us this morning.
Neil M. Ashe: And our fiscal 2020 for third quarter, we delivered solid results we.
Neil M. Ashe: We increased our adjusted operating profit adjusted operating profit margin and adjusted diluted earnings per share.
Neil M. Ashe: We generate strong free cash flow, and we allocate capital effectively to drive value. In our lighting and lighting controls business, we continue to expand profitability while we focus on returning the business to growth. In our intelligence spaces business, the growth rate and overall performance remain impressive. In ABL, we increased our adjusted operating profit by $2 million to $162 million and increased our adjusted operating profit margin 100 basis points to 18% on $42 million left sale.
Neil M. Ashe: We generate strong free cash flow and we allocated capital effectively to drive value.
Neil M. Ashe: And our lighting and lighting controls business, we continue to expand profitability, while we focus on returning the business to growth.
And our intelligence spaces business the growth rates and overall performance remains impressive.
Neil M. Ashe: And ABL, we increased our adjusted operating profit of $2 million to a $162 million and increased our adjusted operating profit margin 100 basis points to 18% on $42 million less sales.
Neil M. Ashe: These results are being driven by our ongoing efforts to increase product vitality, elevate service levels, use technology to improve and differentiate both our products and how we operate the business, and to drive productivity. We define product vitality as the combination of new product introductions and improvements to our existing portfolio with the intention of making products that are more valuable for our customers and more profitable for us. A great example of this is the Lithonia frame, which we recently introduced to the market.
Neil M. Ashe: These results are being driven by our ongoing efforts to increase product vitality elevate service levels. These technology to improve and differentiate both our products and how we operate the business and to drive productivity.
Neil M. Ashe: We defined product vitality is the combination of new product introductions and improvements to our existing portfolio with the intention of making products that are more valuable for our customers and more profitable for us.
Neil M. Ashe: A great example of this is the last audit frame, which we recently introduced to the market.
Neil M. Ashe: This luminaire is a modern and sustainable alternative to traditional LED panels and can be used in all indoor applications, including commercial offices and K-12 schools. Frame offers our customers value as a result of three things. The first is its flexibility of design. The frame comes in three different size options with switchable technology to offer different lumen outputs and color temperatures.
Neil M. Ashe: This luminaire as a modern and sustainable alternative to traditional led panels and can be used in all indoor applications, including commercial office in K 12 schools.
Neil M. Ashe: The second is its lightweight design and patented snap connections that allow for quick assembly and ease of installation. And the third is that it costs less to package and ship as a result of its minimal, sustainable packaging. I'd now like to spend a few minutes talking about our differentiated product portfolio, Made to Order, Design Select, and Contractor, and how they are creating the most effective way for our end users and contractors to get what they need, when they need it, for their specific project. The majority of our products are made-to-order, which uses our entire portfolio to create limitless design options for our customers. From concept to creation, we meet their requirements. I'd like to share a few examples with you.
Frame offers our customers value as a result of three things.
Neil M. Ashe: The first is its flexibility of design the.
Neil M. Ashe: The frame comes in three different size options with switchable technology to offer different lumen output and color temperatures.
Neil M. Ashe: The second is it's lightweight design and patented snap connections that allow for quick assembly and ease of installation.
Neil M. Ashe: And the third is that a costless to package and ship as a result of its minimal sustainable packaging.
Neil M. Ashe: I'd now like to spend a few minutes talking about our differentiated product portfolio.
Neil M. Ashe: <unk> made to order designed select and contractor select and how they are creating the most effective way for our end users and contractors to get what they need when they need it for their specific projects.
Neil M. Ashe: The majority of our products are made to order, which uses our entire portfolio to create limitless design options for our customers.
Neil M. Ashe: From concept to creation, we meet their requirements.
Neil M. Ashe: I'd like to share a few examples with you.
Neil M. Ashe: We have been working on the restoration of Michigan Central Station in Detroit, where we took the original lighting blueprints from 1912 and recreated them as current generation LED fixtures. When combined with our controls, these fixtures deliver energy savings and create distinct event lighting to deliver a completely unique solution. We are also able to adapt our existing lighting and lighting controls portfolio. For example, this quarter, we met the retrofit requirements of a large retail customer by using the base design of several key fixtures and combining them with our controls to create a unique tailored solution. And finally, we have specialty brands known for innovation, like Alight, Luminance, and Eureka, which meet the needs of lighting specifiers in different spaces, ranging from offices to healthcare to schools.
Neil M. Ashe: We have been working on the restoration of the Michigan Central station in Detroit, where we took the original lighting blueprints from 1912 and recreated them as current generation led fixtures.
Neil M. Ashe: When combined with our controls these fixtures deliver energy savings and create distinct event lighting to deliver a completely unique solution.
Neil M. Ashe: We are also able to adapt our existing lighting and lighting controls portfolio.
Neil M. Ashe: For example, this quarter, we met the retrofit requirements of a large retail customer by using the base design of several key fixtures and combining them with our controls to create a unique tailored solutions.
Neil M. Ashe: And finally, we have specialty brands known for innovation like a light luminous and Eureka, which meet the needs of lighting specifier in different spaces, ranging from offices to healthcare to schools.
Neil M. Ashe: Next, Design Select takes the limitless design options from made-to-order and curates them into an offering that delivers a highly productive approach to project design, with ease of selection and service predictability. Whether a customer needs their products in three weeks or three months, we are able to satisfy their timeline. We deliver highly configurable product options for superior solutions by incorporating a broad portfolio of our trusted brands and offering in-light embedded control. And the final part of our differentiated portfolio is Contractor Select. About 300 high-volume products that are used in common, everyday lighting applications and designed to be stocked and resold.
Neil M. Ashe: Next design select takes a limitless design options for made to order and curious them into an offering that delivers a highly productive approach to project designed with ease of selection and service predictability.
Neil M. Ashe: Whether a customer needs their products in three weeks or three months, we were able to satisfy their timelines.
Neil M. Ashe: We deliver highly configurable product options for superior solutions by incorporating a broad portfolio of our trusted brands and offering and light embedded controls.
Neil M. Ashe: And the final part of our differentiated portfolio is contractor select.
Neil M. Ashe: About 300 high volume products that are used in common everyday lighting applications designed to be stocked and resold.
Neil M. Ashe: We have been able to create a portfolio that offers quality products that our customers want at competitive prices, while at the same time allowing our distributor partners to achieve higher returns. We also continue to make investments for future growth, prioritizing new verticals where we have not historically competed or where we are underpenetrated. For example, we have recently entered the refueling vertical, which includes service stations, convenience stores, and quick service restaurants.
Neil M. Ashe: We have been able to create a portfolio that offers quality products that our customers want at competitive prices, while at the same time, allowing our distributor distributor partners to achieve higher returns.
Neil M. Ashe: We also continue to make investments for future growth prioritizing new verticals, where we have not historically competed for where we are underpenetrated.
Neil M. Ashe: We have recently entered the refueling vertical which includes service stations convenience stores and quick service restaurants.
Neil M. Ashe: We are reimagining the customer experience using solutions specifically developed for these applications, in addition to our other existing products from our Lighting and Lighting Controls portfolio. This is a vertical where we have not broadly competed, and earlier this week, we announced that we have signed one of the leading independent sales agents, positioning us well to compete in this established and growing market. This builds upon our discussion last quarter about entering the horticulture market.
Neil M. Ashe: We are re imagining the cut the re imagining the customer experience using solutions specifically developed for these applications. In addition to our other existing products from our lighting and lighting controls portfolio.
Neil M. Ashe: This is a vertical where we have not broadly competed and earlier. This week, we announced that we have signed one of the leading independent sales agents positioning us well to compete in this established and growing market.
Neil M. Ashe: This builds upon our discussion last quarter around entering the horticulture market.
Neil M. Ashe: This is another example of a vertical where we have not historically competed and where we have long-term opportunities for growth. We continue to be recognized by the industry. This quarter, we were awarded three Red Dot Design Awards for product design.
Neil M. Ashe: This is another example of a vertical where we have not historically competed and where we have long term opportunities for growth.
Neil M. Ashe: We continue to be recognized by the industry.
This quarter, we were awarded three Red Dot design award for product design.
Neil M. Ashe: One of the most sought-after distinctions for design and quality. We won for in-line by Luminous, which we profiled in our first quarter earnings call. Atoll by Eureka, and Mochi by Cyclone.
Neil M. Ashe: The most sought after distinctions for design and quality.
Neil M. Ashe: We won for in line by luminous, which we profiled in our first quarter earnings call.
Neil M. Ashe: Atoll is a high-performance ring fixture with an elevated design that produces an evenly distributed glow and is available with multiple size and mounting options for use in commercial spaces and other indoor environments. 2024 marks the 10th consecutive year that our Eureka brand has won a Red Dot Design Award, and Atoll brings its total product wins in this category to 20. MOCHI is a contemporary domed street light that offers precision illumination for use in infrastructure projects where safety is a priority, including cities, residential streets, and commercial buildings.
Neil M. Ashe: <unk> bye Eureka and mochi by cyclone.
Neil M. Ashe: April is a high performance ring fixture with an elevated design that produces an evenly distributed glow and is available with multiple size and mounting options for use in commercial spaces and other indoor environments.
Neil M. Ashe: 2024 marks the 10th consecutive year that our Eureka brand has won a red Dot design award and <unk> brings a total product wins in this category to 'twenty.
Neil M. Ashe: Mochi as a contemporary Delmas Street life that offers precision illumination for use in infrastructure projects, where safety is a priority, including city residential street and commercial buildings.
Neil M. Ashe: Its innovative design offers multiple configurations in addition to a patented latch that allows for easy maintenance access without compromising security. This is the first Red Dot win for our Cyclone brand. In addition, we were awarded 21 Bright Star Awards from LEDs magazine, which acknowledges innovation in lighting, components, and controls for products across 14 of our brands, including Aculux, Hydrel, Eldeled, and Enlight. Now, moving on to our Intelligent Spaces group. Our mission in our intelligent spaces business is to make spaces smarter, safer, and greener through our strategy of connecting the edge to the cloud. DizTech has the best edge control devices in the market, while Atreus will be the best in cloud applications.
Neil M. Ashe: Its innovative design offers multiple configurations. In addition to our patented latch that allows for easy maintenance access without compromising security.
Neil M. Ashe: This is the first read that win for our cyclone brand.
Neil M. Ashe: In addition, we were awarded 21 Bright Star Awards from Leds magazine, which acknowledges innovation of lighting components and controls for products across 14 of our brands, including <unk> Hydrogel elder led and enlighten.
Neil M. Ashe: Now moving onto our intelligent spaces group our.
Neil M. Ashe: Our mission and our intelligent spaces business is to make spaces smarter safer and greener through our strategy of connecting the edge to the cloud <unk>.
Neil M. Ashe: <unk> has the best as control devices in the market, while atreus will be the best in cloud applications.
Neil M. Ashe: In SPACES, we are focused on where we compete and what we can control to expand our addressable market. As part of our geographic expansion, this quarter, we continue to add systems integrator capacity in the UK, Australia, and Asia. We partner with the best SIs in specific geographies to sell our full suite of DISTECC and Atrius products. In May, we hosted our key SI partners and end users at our European Connect conference in Marseille. It was a great success.
Neil M. Ashe: In spaces, we are focused on where we compete and what we can control to expand our addressable market.
Neil M. Ashe: As part of our geographic expansion. This quarter, we continue to add systems integrator capacity in the U K, Australia and Asia.
Neil M. Ashe: We partner with the best size in specific geographies to sell our full suite of <unk> and <unk> products.
Neil M. Ashe: In May we hosted our key Si partners and end users at our European connect conference in Marseille.
Neil M. Ashe: It was a great success, and we look forward to hosting our North American connect conference in Nashville later this year.
Neil M. Ashe: And we look forward to hosting our North American Connect Conference in Nashville later this year. At CONNECT, the DISTECC Recense Move Sensor that we discussed in the first quarter continues to generate positive reviews. As a reminder, this is an advanced 7-in-1 ceiling-mounted sensor that is able to detect occupancy and provide feedback on occupancy requirements in built spaces. We also showcased our refrigeration offering, which included the upgraded DISTECK Key to Therm Smart Access, a personalized, secure portal that provides real-time refrigeration system data that can troubleshoot system issues, prevent unnecessary site visits, and save our customers money. The device talks to all DISTEC Key2Therm sensors and controls and allows on-site and remote monitoring for one or multiple site locations.
Neil M. Ashe: At connect the <unk> resets move sensor that we discussed in the first quarter continued to generate positive reviews. As a reminder, this is an advanced 701 ceiling mounted sensor that is able to detect occupancy and provide feedback on occupancy requirements and build spaces.
Neil M. Ashe: We also showcased our refrigeration offering which included the upgraded <unk> key to <unk> smart access a personalized secure portal that provides real time refrigeration system data that can troubleshoot system issues prevent unnecessary site visits and save our customers money.
Neil M. Ashe: The device talks to all <unk> sensors, and controls and allows onsite and remote monitoring for one or multiple site locations.
Neil M. Ashe: And this quarter, our SPACES products received recognition from several industry leaders. For example, our DISTEC Recess Move won Best AI Tech Innovation for Intelligent Buildings at IBECON 2024 last year, having also won an Excellence Award in the 2024 Electrical Review and Data Center Review earlier in the quarter. Our DISTECC ECLIPSE APEX controller won a product of the year award at the 2024 Consulting Specifying Engineer Awards. And Atrius won Best ESG and Climate Reporting Software from ESG Investing Magazine for the second consecutive year and won Top Products of 2024 by E&E Leader. Now, turning to our outlook. In our lighting business, our order rate continued to grow year over year in the third quarter. We built a backlog as our orders exceeded our shipments.
Neil M. Ashe: And this quarter our spaces products received recognition from several industry leaders.
Neil M. Ashe: Our <unk> research move one best AI Tech innovation for intelligent buildings at <unk> 2024 last week, having also won an excellence award in the 2024 electric overview and datacenter review earlier in the quarter.
Neil M. Ashe: Our distinct controls eclipsed apex controller, when a product of the year award at the 2024 consulting specifying engineer awards.
Neil M. Ashe: And atria, one best ESG and climate reporting software from ESG investing magazine for the second consecutive year and one top products of 2024 by any leader.
Neil M. Ashe: This backlog will be served in the coming quarter. As we enter the fourth quarter, the order rate trend is likely to continue, and we will remain focused on returning the business to growth while expanding margins and generating strong free cash flows. Our spaces business continues to grow impressively and is becoming a more important part of our company. Our performance is and continues to be strong, and we will continue to allocate capital to expand our addressable market. Now, I'll turn the call over to Karen, who will give you an update on our third quarter performance. Thank you, Neil, and good morning to everyone on the call.
Neil M. Ashe: Now turning to our outlook.
Neil M. Ashe: In our lighting business, our order rate continued to grow year over year in the third quarter.
Neil M. Ashe: We built backlog as our orders exceeded our shipments.
Neil M. Ashe: This backlog will be served in the coming quarters.
As we enter the fourth quarter. The order rate trend is likely to continue and we will remain focused on returning the business to growth, while expanding margins and generating strong free cash flow.
Neil M. Ashe: Our space business continues to grow impressively and is becoming a more important part of our company.
Neil M. Ashe: Our performance is and continues to be strong and we will continue to allocate capital to expand our addressable market.
Speaker Change: Now I'll turn the call over to Karen who will give you an update on our third quarter performance.
Karen: Thank you Neal and good morning to everyone on the call.
Karen J. Holcom: We continue to deliver solid performance in our third quarter, with both our lighting and spaces businesses delivering margin improvements. We increased our adjusted diluted earnings per share, and we generated strong year-to-date operating cash flow. We allocated capital effectively and continue to make progress on our strategic priorities. For total AYI, we generated net sales in the third quarter of $968 million, which was $32 million, or 3% below the prior year, as a result of lower net sales in our lighting and lighting controls business.
Karen: We continued to deliver solid performance in our third quarter with both our lighting and space businesses delivering margin improvements.
Karen: We increased our adjusted diluted earnings per share and we generated strong year to date operating cash flow.
Karen: We allocated capital effectively and continue to make progress on our strategic priorities.
Karen: For total <unk> Yi, we generated net sales in the third quarter of $968 million.
Karen: Which was $32 million or 3% below the prior year.
Karen: As a result of the lower net sales in our lighting and lighting controls business.
Karen J. Holcom: Our SPACES business continued to experience strong growth of 15% in the quarter. Additionally, we continue to deliver year-over-year margin improvement. During the third quarter, our adjusted operating profit was up $4 million from last year on a $32 million decline in sales, and we expanded our adjusted operating profit margin to 17.3%, an increase of 100 basis points from the prior year. This increase was driven largely by a significant year-over-year improvement in our gross profit margin as we continue to execute our strategy and drive margin through product vitality, the management of price and cost, and productivity improvement.
Karen: Our space business continued to experience strong growth of 15% in the quarter.
Karen: We continued to deliver year over year margin improvement.
Karen: During the third quarter, our adjusted operating profit was up $4 million from last year on the $32 million decline in sales and we expanded our adjusted operating profit margin to 17, 3% an increase of 100 basis points from the prior year.
Karen: This increase was driven largely by the significant year over year improvement in our gross profit margin as we continued to execute our strategy and drive margin through product vitality and management of price and cost and productivity improvements.
Karen J. Holcom: During the quarter, our adjusted diluted earnings per share of $4.15 increased $0.40 or 11% over the prior year due to higher net income and lower shares outstanding. In ABL, net sales were $899 million, a decrease of 5%.
During the quarter, our adjusted diluted earnings per share of $4 15.
Karen: Increased 44 or 11% over the prior year due to higher net income and lower shares outstanding.
Karen: In ABL net sales were $899 million.
Karen: A decrease of 5% however, as Neil said earlier in the call our order rates are higher year over year.
Karen J. Holcom: However, as Neil said earlier in the call, our order rates are higher year over year. While the independent sales network was down as a result of the challenging comparables last year, this quarter was a good quarter for corporate accounts, which benefited from the large retail Relight project. Adjusted operating profit increased to $162 million on lower net sales, while we delivered an improved adjusted operating profit margin of 18%, a 100 basis point improvement over the prior year.
Speaker Change: While the independent sales network was down as a result of the challenging Comparables last year. This quarter was a good quarter for corporate accounts, which benefited from a large retail re light project.
Speaker Change: Adjusted operating profit increased to $162 million on lower net sales.
While we delivered improved adjusted operating profit margin of 18%, a 100 basis point improvement over the prior year.
Karen J. Holcom: Net sales and intelligence spaces for the third quarter were $76 million, an increase of 15% as this set continued to grow. The integration of Key2Therm is now complete, and Key2Therm products are now a line under the DisTechControls product portfolio.
Speaker Change: Net sales in intelligent spaces for the third quarter were $76 million, an increase of 15% as <unk> continued to grow.
Speaker Change: The integration of <unk> is now complete and key to <unk> products are now product line under the <unk> controls product portfolio.
Karen J. Holcom: Adjusted operating profit in intelligence spaces was $17 million, with the adjusted operating profit margin at 22.9%, a 340 basis point improvement over the prior year. Now, turning to our cash flow performance. We generated $445 million of cash flow from operating activities year-to-date, and we are earning attractive returns on the cash that we have on our balance sheet. We continue to allocate capital consistent with our priorities. Year-to-date, we have invested $41 million in capital expenditures.
Speaker Change: Adjusted operating profit and intelligent spaces was $17 million with the adjusted operating profit margin at 22, 9%, a 340 basis point improvement over the prior year.
Speaker Change: Now turning to our cash flow performance.
Speaker Change: We generated $445 million of cash flow from operating activities year to date, and we are earning attractive returns on the cash that we have on our balance sheet.
Speaker Change: We continue to allocate capital consistent with our priorities year.
Speaker Change: Year to date, we invested $41 million in capital expenditures, we acquired the assets of arrive horticulture lighting.
Karen J. Holcom: We acquired the assets of Arise Horticulture Lighting. We increased our dividend per share by 15% and allocated approximately $89 million to repurchase over 454,000 shares. Since the beginning of the fourth quarter of fiscal 2020, we have 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 then outstanding shares. We continue to demonstrate solid performance. We delivered improved margins and increased adjusted diluted earnings per share.
Speaker Change: We increased our dividend per share, 15% and allocated approximately $89 million to repurchase over 454000 shares.
Since the beginning of the fourth quarter of fiscal 2020.
Speaker Change: We have repurchased approximately $9 5 million shares at an average price of about $145 per share, which was funded by organic cash flow.
Speaker Change: This amounts to about 24% of the then outstanding shares.
Speaker Change: We continue to demonstrate solid performance, we delivered improved margins and increased adjusted diluted earnings per share.
Karen J. Holcom: We generated strong cash flow from operations, and we continue to allocate capital effectively. Thank you for joining us today. I will now pass you over to the operator to take your questions. Thanks. If you'd like to ask a question at this time, please press star 1 1 on your touchtone. Our first question comes from the line of Christopher Glynn with Oppenheimer.
Speaker Change: We generated strong cash flow from operations and we continue to allocate capital effectively.
Speaker Change: Thank you for joining us today.
I will now pass you over to the operator to take your questions.
Speaker Change: Thank you.
Speaker Change: If you'd like to ask a question at this time. Please press star one one on your Touchtone telephone.
Speaker Change: Our first question comes from the line of Christopher Glynn with Oppenheimer. Your line is now open.
Christopher D. Glynn: Thanks, Good morning.
Christopher D. Glynn: Good morning, I was, you know, looking at the continuing gross margin performance and all the execution there. Curious... The service model streamlining initiatives, particularly the deployment of design select, are pacing faster than expectations, perhaps. Hey, good morning, Chris.
Christopher D. Glynn: With.
Christopher D. Glynn: Looking at the continuing gross margin performance in all of the execution there.
Christopher D. Glynn: Curious if.
The service model streamlining initiatives, particularly the <unk>.
Christopher D. Glynn: Deployment of design select is facing pacing faster than expectations, perhaps.
Neil M. Ashe: Thanks for the question. We're pleased with our performance on margin expansion. As you know, this has been a multi-year process, and it's been focused really on the strategy of product vitality, increasing service levels, using our technology to differentiate and how we operate the business, and then driving productivity. So this is a point on that path. I'd really highlight product vitality and our ability, as we said in the prepared remarks, to both deliver more value to our end users as well as make products more profitable for us. So obviously, that's a number of things. Design Select is among those things. It's actually pacing where we expect it.
Speaker Change: Hey, good morning, Chris Thanks for the thanks for the question so.
Neil M. Ashe: So it is not the primary driver of the improvement here, which highlights the trend that we're on and the length of the path we still have to travel to get there. So we're pleased. I'd also highlight that, you will remember, we acquired the optotronics business from Osram. So we control more of the technology that is in our luminaires.
Speaker Change: We're pleased with our performance on on margin expansion as you know this has been a multiyear process and it's been focused really on the strategy of product vitality, increasing service levels, using our technology to differentiate and how we operate the business and then driving productivity. So so this is this is a point on that.
Speaker Change: On that path.
Speaker Change: I would highlight really around product vitality at our ability as we said in the prepared remarks to both deliver more value to the to our end users as well as make more.
Speaker Change: Make products more profitable for us. So so obviously thats a number of things designed select is among those things, it's actually pacing, where we expected. So it is not the primary driver of the improvement here, which highlights the trend that we're on and the length of the path, we still have to travel there.
Speaker Change: So we're pleased I'd also highlight that Youll remember, we acquired the Optronics business from <unk>. So we control more of the technology that is in our alumina errors and that gives us significant flexibility both in our design and in our operations. So so we're pleased.
Christopher D. Glynn: That gives us significant flexibility both in our design and our operation. So we're pleased with the continued margin performance, and it is attributable to multiple different things working in harmony. Thanks, I appreciate all that color.
Speaker Change: With the continued margin performance and it is attributable to.
Speaker Change: Multiple different things working in harmony.
Neil M. Ashe: And then the positive book to Bill, Notable, you know, an interesting caveat to the revenue being a little short of estimates out there. And I think it's the third straight quarter of positive year-over-year orders. I'm curious if the patterns, you know, weekly, monthly, are still pretty consistent, or perhaps they're getting a little more streaky in the front month.
Speaker Change: Thanks, I appreciate all that color and then.
Speaker Change: Positive book to Bill.
Speaker Change: Notable.
Speaker Change: And interesting caveat.
Speaker Change: The revenue being a little short of estimates out there and I think it's from third straight quarter of positive year over year orders.
I'm curious if the.
Speaker Change: Patterns weekly monthly or still pretty consistent or perhaps they are getting a little more streaky and the front month or two.
Neil M. Ashe: Yeah, so this quarter, as we said, our orders exceeded our shipments. The order rate has been relatively consistent throughout the year. So, as Karen mentioned in her remarks, our production targets, we did not meet our production targets in the quarter, which is why we built backlogs, and why our orders exceeded our shipments. So we're working on that. We'll sort that out, obviously, going forward.
Speaker Change: Yes so.
Speaker Change: This quarter as we said our orders exceeded our shipments the order rate has been relatively consistent throughout the year. So as Karen mentioned in her remarks.
Speaker Change: Our production.
Speaker Change: We did not meet our production targets in the quarter, which is why are we built backlog. So why our orders exceeded our shipments. So we're working on that will sort that out obviously going forward and and we will satisfy that backlog.
Neil M. Ashe: And we will satisfy that backlog. In the big picture, we are cautiously optimistic, I would say, about the future. The power of the diversity of our portfolio is really demonstrating itself both in this quarter and as we go forward. So I'd highlight the corporate accounts business, where while that is the definition of streaky, to your question, because we meet large customers when they're ready, it's a very attractive piece of business that we are uniquely positioned to serve in the industry. So things like that have been very streaky.
Speaker Change: Big picture.
Speaker Change: We are cautiously optimistic I would say about the about the future.
Speaker Change: The power of the diversity of our portfolio is really demonstrating itself both in this quarter and as we go forward. So.
Speaker Change: I'd highlight the.
Speaker Change: The corporate accounts business, where.
Speaker Change: That is the definition of streaky to your question because.
Speaker Change: We meet large customers when they are ready, it's a very attractive piece of business that is that we are uniquely positioned to serve in the industry. So.
Neil M. Ashe: Things like C&I have been relatively consistent. So that builds us a strong foundation so that we can adapt to where opportunity is in the market. And then we'll continue to invest to add new areas of competition for the lighting business specifically. And we'll talk about spaces, I'm sure, later.
Speaker Change: So things like that have been streaky things like C&I have been relatively consistent so.
Speaker Change: So.
Speaker Change: That builds us a strong foundation, so that we can adapt to where opportunity is in the market and then we'll continue to invest to add new areas of competition for the lighting business, specifically and we will talk about spaces I'm sure later, but but there we talked about border culture and petroleum so.
Ryan James Merkel: But there, we talked about horticulture and petroleum. So the streaky place, as Karen identified, was around corporate accounts, which is a very attractive piece of business for us. Okay, thank you. Our next question comes from the line of Ryan Merkel with William Blair. Your line is now open.
Speaker Change: So the Streaky places as Karen identified was around corporate accounts, which is a very attractive piece of business for us.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Ryan Merkel with William Blair. Your line is now open.
Neil M. Ashe: Hey, thanks for taking the questions. I wanted to ask as well about the order rate growth. Neil, can you talk about which end markets you're seeing positive trends and maybe by geography where things are a bit stronger? Yeah, I'll start, and Karen, add color as you see fit.
Ryan James Merkel: Hey, Thanks for taking the questions I wanted to ask as well on the order rate growth. Neil can you just talk about which end markets, you're seeing positive trends and maybe by geography, where it's where things are a bit stronger.
Speaker Change: Yes, I'll start and Karen.
Speaker Change: Color as you see as you see fit.
Let me first start by the Disaggregated revenue, we've seen consistency in the C&I channel as I said as I said earlier, so that's our agent project business throughout the throughout the country.
Neil M. Ashe: Let me first start with disaggregated revenue. We've seen consistency in the CNI channel, as I said earlier. So that's our agent project business throughout the country, and that has been stronger in areas where you would expect, like the South, areas where there is growth in the country. Obviously, again, strength in corporate accounts and the opportunities that we have there, and in the longer term, strength in our infrastructure. So we are taking longer live orders, if you will, so that that is satisfying over a longer period of time than we have in the past. So, you know, we've talked about the city of Philadelphia in the Hall of Fame, for example. There are others that look and smell and smell like that.
Speaker Change: And that has been stronger in areas, where you expect like the south areas, where there are growth.
Speaker Change: Kind of in the country.
Speaker Change: Obviously.
Speaker Change: Again, strengthen and corporate accounts and the opportunities that we have there.
Speaker Change: Longer term strength in our and our infrastructure. So we are taking longer lived.
Speaker Change: Orders, if you will so that satisfy over a longer period of time than we have in the past. So we've talked about the city of Philadelphia. The Hall of Fame. For example, there are others that that look and smell and smell like that so.
Neil M. Ashe: So, yes, I mean, we are not in a market where everything is up and to the right, but our diversity of opportunity is giving us the ability to continue to have a relatively consistent order rate. Karen, anything you'd like to add? Yeah, the only thing I would like to add, Ryan, is that when we look ahead, infrastructure continues to show positive signs. It's not landing yet, but the quoting activity is really strong. So, as we look ahead, I think we have the portfolio to service that business and see that as an opportunity for us.
Speaker Change: Yes, I mean, it is not we are not in a market where everything is up into the right, but our diversity of opportunity is presenting us the ability to continue to have.
Karyn: On a relatively consistent order rate karyn anything you'd like to add yes. The only thing I would like to add Ryan is that when we look ahead infrastructure continues to show positive signs, it's not landing yet, but the quoting activity is really strong. So as we look ahead I think we have the portfolio to service that business and see that as an.
Karyn: <unk> for us.
Ryan James Merkel: Okay, that's helpful. And then I want to go back to the comment Neil made about not shipping maybe as well as you could have, and you're going to address that. Can you just talk about that? And then when do you think you'll solve that?
Speaker Change: Got it Okay. That's helpful. And then I wanted to go back to the comment you made about not not shipping maybe as well as you could have and youre going to address that can you just talk about that and then when do you think you'll solve that.
Neil M. Ashe: Yeah, so as we said, our orders exceeded our shipments, which means we generated a backlog during the quarter. That backlog will be fulfilled and shipped. The reason is we didn't meet our daily production targets, and there are a handful of reasons for that, none of which are alarming, and we are in the process of addressing them all. So we'll sort those out over the course of this quarter and the next quarter, and we'll be back to where we want to be. All right, thanks, I'll pass it on.
Yes, so so as we said our orders exceeded our shipments which means we we.
Speaker Change: We generated backlog during the quarter that backlog will be executed and shipped.
Speaker Change: The reason is we we didn't meet our daily production targets and and there are a handful of reasons for that and none of which are alarming and and we are in the process of addressing them. All so so we'll sort those out and over the course of this quarter in the next quarter and we'll be back to where we want to be.
Speaker Change: <unk>.
Speaker Change: Alright, Thanks, I'll pass it on thanks.
Ryan James Merkel: Thanks, Ryan. Our next question comes from the line of Tim Wohl. Your line is now disconnected.
Brian: Thanks, Brian.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Tim <unk> with Baird. Your line is now open.
Timothy Ronald Wojs: Hey, everybody. Good morning. Morning, Tim.
Speaker Change: Hey, everybody good morning.
Speaker Change: Good morning, Tim.
Neil M. Ashe: Hey, Neil, just to start, just on, you know, getting into kind of the refueling and kind of the C-STOR market. I guess. You know, maybe just if you could step back and kind of talk about maybe why Acuity didn't address that market in the first place and how maybe the unit economics of that business and, you know, kind of compare to, you know, your existing portfolio. Yeah, so it's a good question.
Tim: Just to start just on getting into kind of the refueling and kind of the C store market I guess.
Speaker Change: Maybe just if you could step back and kind of talk about maybe why acuity didn't address that market in the first place and how maybe the unit economics of that business and kind of compare to.
Speaker Change: Kind of your existing portfolio.
Neil M. Ashe: So if you'll allow me, Tim, I'll just rise for a second to say that one of the perceptions about Acuity brand lighting and inclusive of our own is that because we're the largest in North America, we, we assume we're the largest in North America, which means we weren't always good at seeing the opportunities where we didn't compete. So we are highly focused on where we do compete.
Tim: Yes, so it's a good question. So if you'll allow me Tim I'll just I'll just elevate for a second to say that I think one of the perceptions about acuity brands lighting and inclusive of our own is that because we are the largest in North America.
Tim: We assume we're the largest in North America, which means we werent always good at seeing the opportunities where we didn't compete so we're highly focused on where we do compete and and.
Neil M. Ashe: And we historically were less focused on where we didn't compete. So the refueling vertical is an example of where we didn't compete. And so we paid some attention, but not enough attention to, what that business was. And they were for any number of reasons: focus, we had all the other things to do, et cetera. As we've focused the company now on finding these opportunities to, to, to grow where we are either not competing or not competing fulsomely, we've started to identify rich niches where we want to, and verticals where we want to go compete. The refueling one is an, is an obvious one.
Tim: And we historically were less focused on where we didnt compete.
Tim: So the refueling vertical as an example of where we didnt compete and so we paid some attention, but not enough attention to to what that business was and they were for any number of reasons focus we had all of the other things to do et cetera.
Tim: As we focus the company now on finding these opportunities too.
Tim: Grow where we where we are either not competing or not competing fulsomely.
Started to identify rich niches, where we want to and verticals, where we want to go compete the refueling. One is a is an obvious one so.
Neil M. Ashe: So it's attractive for the size of the ultimate market on an end user base or an end basis. Number one, number two, it's an attractive competitive market with effectively limited competitors. So we decided to enter that business organically because, obviously, we can create a ton of value by building an attractive-sized business in that vertical. So we invented new fixtures that support the core of that business, which is canopy lighting.
Tim: It's attractive.
Tim: For the size of the of the ultimate market and user base.
Tim: And basis number one number two it's an attractive competitive market with effectively limited competitors.
Tim: So we decided to enter that business organically, because obviously, we can create a ton of value by by building an attractive size business in that vertical. So we invented new fixtures that that support the core of that which is canopy lighting.
Neil M. Ashe: We, those fixtures are at least as competitive, but in most cases, more competitive than what's currently in the marketplace. Those fixtures then pair with a lot of the rest of our portfolio to serve the rest of the facility. So imagine yourself in an EV charging lot or a gas station, and what that really is is a canopied area and a facility where retail and food are sold, which obviously we excel in, as evidenced by our corporate accounts this quarter.
Tim: Those fixtures are.
Tim: Our.
Tim: At least as but in most cases more competitive than what's currently in the marketplace.
Tim: Those those fixtures then pair with a lot of the rest of our portfolio to serve the rest of the facility. So imagine yourself on our EV charging lot or a gas station and.
And what that really is is a canopy to area and a facility where were retail and food is sold which obviously, we excel in evidenced our corporate accounts this quarter.
Tim: So when you put those two together that creates an attractive market for us to go service.
Neil M. Ashe: So when you put those two together, that creates an attractive market for us to enter. And I want to commend our teams for their ability to organically develop the product portfolio at a really rapid pace so that we can meet that market. So then we get to do other things we're really good at, like go and recruit the top independent sales agents in that market to represent us. And so we're optimistic about our ability to do this in this vertical and for it to be an attractive part of our portfolio going forward. Okay, okay, great.
Tim: And I want to commend our teams for their ability to organically develop the product portfolio and at a really rapid pace. So that we can meet that market. So then we get to do other things we're really good at like go and recruit.
Tim: The top independent sales agent in that market too to represent us and so we're we're optimistic about our ability to do this in this vertical and it for it to be in.
Tim: An attractive part of our portfolio going forward.
Timothy Ronald Wojs: And then maybe just, you know, maybe a higher level question also, but on SDNA, you know, we've seen that kind of ramp now to maybe, you know, 32% or so of sales. I know this year has been kind of a little wonky in terms of the sales numbers. But I guess as you look out over the next couple of years, I mean, when would you expect to start to see leverage on the heightened SDNA?
Okay, Okay, Great and then maybe just.
Speaker Change: Maybe at a higher level question also but on SG&A.
Speaker Change: We've seen that kind of ramp now to maybe 32% or so of sales I know this year, it's been kind of a little walk in terms of the sales numbers, but I guess as you look out over the next couple of years I mean, when would you expect to start to see leverage on the heightened SG&A spend.
Timothy Ronald Wojs: So I'll start and then Karen will add actual real color to the conversation, but the big picture on SDNA, I want to highlight, it is SDNA. So there's sales and marketing, and then there's the distribution that we recognize in that number. So the distribution part of that is really part of our operation, and we are addressing that going forward to improve it, but that currently generally moves basically in line with our volume.
Speaker Change: So I'll start and then Karen will will add actual real color to the conversation but.
Speaker Change: Big picture on SG&A I want to highlight.
Speaker Change: It is as DNA so.
Speaker Change: So there is there are sales and marketing and then there is the distribution that is that we recognized in that number so.
Speaker Change: So the distribution part of that is.
Speaker Change: Really part of our operation and and we are addressing that going forward to improve that but thats currently generally moves.
Speaker Change: Basically in line with our volume so.
Timothy Ronald Wojs: So if we put that aside, then from an operating expense perspective, and then sales and marketing are obviously driven largely by the commissions we pay to the independent sales network. Within our operating expenses, then, our priority and where our investment has been have been around technology. So we have historically been under-invested in technology and realized, as a result, not as many of the benefits as we could. So our priority in that investment is to drive technology, which is helping to deliver some of the gross margin performance and will ultimately be more leverageable going forward. Karen?
Speaker Change: So if we put that aside then from an operating expense and then sales and marketing obviously is driven by the largely by the commissions, we paid to the independent sales network within our operating expenses than our priority and where our investment has been has been around technology. So we have historically been underinvested in technology.
Realized as a result, not as many of the benefits as we could so our priority. There is on the on the investment is to is to drive technology, which is helping to deliver some of the gross margin performance and will ultimately be more levered to bill going forward Karen yes.
Neil M. Ashe: Yeah, Tim, the other thing I would point out is that if you look at the dollar investment quarter to quarter in fiscal 2024, we've been pretty consistent. So as we look to return the business to growth, I think that's where we'll have a real opportunity to leverage our current level of fixed income. Okay, great. Thanks a lot.
Tim: Yes, Tim the other thing I would point out is that if you look at the dollar investment quarter to quarter in fiscal 2024, we've been pretty consistent so.
Speaker Change: As we look to return the business to growth I think thats, where we will have a real opportunity to leverage our current level.
Speaker Change: Fixed investment.
Speaker Change: Okay, Okay, great. Thanks, a lot.
Speaker Change: Thank you.
Speaker Change: Thank you.
Timothy Ronald Wojs: Thank you. Our next question comes from the line of Joe O'Day with Wells Fargo. Your line is now open. Hi, good morning. Thanks for taking my question. Good morning, Jeff.
Speaker Change: Our next question comes from the line of Joe O'dea with Wells Fargo. Your line is now open.
Hi, good morning, Thanks for taking my questions.
Joe O'Day: Morning, I wanted to start on cash now at about $700 million and just thinking about deployment opportunities, any color on the M&A pipeline, and also the size of what's within that. And, you know, the stock's now down sort of double digits from highs earlier this year. You know, does that give you an opportunity to sort of reconsider deployment and think about reengaging on repo? Yeah, Joe, this is Karen.
Jeff: Good morning, Jeff.
Jeff: Good morning, I wanted to start on cash now at about $700 million and just thinking about deployment opportunities any any color on the M&A pipeline.
Jeff: And also the potential size of what's within that and the stocks now down sort of double digits from highs earlier this year does that give.
Jeff: Give you an opportunity to sort of reconsider deployment and think about re engaging on repo a little more.
Karen J. Holcom: I'll start, and then Neil can add more color on the M&A pipeline. You know, our free cash flow, we're really pleased with where we are year-to-date. We have $404 million of free cash flow, and we continue to invest in the business. So our first priority is always to invest in our current businesses for growth.
Karen: Yes, Joe This is Karen I'll start and then Neill can add more color on the M&A pipeline, our free cash flow. We're really pleased with where we are year to date were $404 million of free cash flow and we continue to invest in the business. So our first priority is always to invest in our current businesses.
Neill: For growth, we do see us doing this through our product vitality efforts.
Karen J. Holcom: You see us doing this through our product vitality efforts. I'm also pleased to announce, and you may have seen this on LinkedIn yesterday, that we were at our DISTEC facility, and we are expanding those operations, both in Lyon and in Montreal, to support the growth of that business. So that is our first priority, to invest in our current businesses for growth. Neil will talk more about the M&A pipeline. We did increase our dividend, if you recall, this year. So our third priority is to increase our dividend, and for the first time in January, we increased it by 15% and maintained that level of dividend for this quarter.
Karen J. Holcom: And then finally, share repurchases, as you acknowledged. As we've said before, when our share price is high, we buy less. When our share price is low, we buy more.
Neill: I'm also pleased to announce that you may have seen us on Linkedin yesterday.
Neill: We run our discharge facility and we are expanding those operations both in Leon and in Montreal to support the growth of that business. So that is our first priority is to invest in our current businesses for growth Neil will talk more about the M&A pipeline.
Neill: Did increase our dividend if you recall this year. So our third priority is to increase our dividend and for the first time in January we increased it by 15% and maintain that level of dividend.
Speaker Change: This quarter and then finally share repurchases as you acknowledged so we've said it before when our share price is high we buy less when our share price is low we buy more and we really have demonstrated that consistently over the past four years, allowing us to buy a significant amount of our shares.
Karen J. Holcom: And we really have demonstrated that consistently over the past four years, allowing us to buy a significant amount of our shares back over that time. So we feel really good about how we've allocated that capital to date. Yeah, and so I'll emphasize a couple of things that Karen said.
Speaker Change: Back over that time, so we would feel really good how we've allocated that capital to date Neil.
Neil M. Ashe: Yes, so I'll emphasize a couple of things that Karen said first is that we're investing for growth in our current businesses evidenced horticulture petroleum.
Neil M. Ashe: First, we're investing for growth in our current businesses, evidence, horticulture, petroleum, the expansion at DISTEC, et cetera. So we are appropriately, we recognize that's the way we can create a ton of value with organic growth funded by our cash flow. On the M&A side, we also recognize that we can expand the portfolio and expand the company in the process. And so we have a robust pipeline of small and medium-sized acquisitions that fit very well with our strategy going forward. And our priority there is around the space business, where, you know, you've seen us do things like E2Therm. There are more like that.
Speaker Change: The expansion at this tech et cetera. So so we were appropriately and we recognize that.
Speaker Change: We can create a ton of value with where the organic growth funded by our cash flow.
Speaker Change: On the M&A side, we recognize also that we can expand the portfolio and expand the company and the process and so we have a robust pipeline of small and medium sized acquisitions.
Speaker Change: That fit very well with our strategy going forward and our priority there is around the space business where.
Speaker Change: <unk> seen us do things like <unk>, there are more like that there are opportunities for us to increase our addressable market and in.
Neil M. Ashe: There are opportunities for us to increase our addressable market in the things that we can control and the manner in which we can control them. And so we're working on that. We also have a developing strong pipeline in the lighting business as well, where we may have the opportunity to put capital to work in attractive ways. But again, we're disciplined. What we look for, one, needs to align with our strategy. And two, we need to understand how we can integrate and operate that.
Speaker Change: And the things that we can control and the manner in which we can control them and.
Speaker Change: So we're working on that.
Speaker Change: We also have a.
Speaker Change: A developing strong pipeline in the lighting business as well, where we may have the opportunity to put capital to work.
Speaker Change: In attractive ways.
Speaker Change: But again.
Speaker Change: We are disciplined.
Speaker Change: What we look for one needs to align with our strategy to we need to understand how we can integrate and operate that three we need to understand its impact on our business our company and our financial performance.
Neil M. Ashe: Three, we need to understand its impact on our business, our company, and our financial performance. And then, fourth, we have to have the opportunity to acquire it at the appropriate valuation. So these things take time. I like to say opportunity knocks. It doesn't come when it's called.
Speaker Change: And then fourth we have to we have to have the opportunity to acquire it.
Speaker Change: At the appropriate valuation so.
Speaker Change: So these things take time.
Speaker Change: I'd like to say opportunity knocks it doesn't come when it's called so we.
Neil M. Ashe: So we will continue to pursue those opportunities, but we feel really good about the pipeline and where we could potentially be over the next couple of years. Those are helpful details. I appreciate them.
Speaker Change: We'll continue to prosecute those opportunities, but we feel really good about the pipeline.
Speaker Change: And where we could potentially be over the next couple of years.
Speaker Change: That's a helpful details I appreciate it.
Joe O'Day: And then just wanted to ask on industry indicators versus demand trends you're seeing. I think, you know, headline figures seeing some softness, you know, softer than expected, ABL revenue, you know, wasn't all that surprising when we look at ABI and Dodge Momentum. But it sounds like that was maybe more sort of internally related, and the commentary on order activity is encouraging. And so just, you know, when you're looking at those indicators and you're seeing the end market, what are the disconnects between the two, such that the underlying demand that you're seeing in orders is still pretty healthy? Yeah, I would say a couple things on that, Joe.
Speaker Change: And then just wanted to ask on insurance industry indicators versus demand trends youre seeing I think headline figures seeing some softness in softer than expected ABL revenue wasn't all that surprising when we look at Abi and Dodge momentum.
Speaker Change: But it sounds like that was maybe more sort of internally related and the commentary on order activity is encouraging and so.
Speaker Change: When youre looking at those indicators and Youre seeing the end market what are the disconnects between between the two.
Speaker Change: Such that the underlying demand that youre seeing in orders is still pretty healthy.
Neil M. Ashe: So, firstly, we're the largest in the market, so obviously, we're going to be affected by the market. Our growth algorithm is straightforward, so it's the impact of the market, one, our ability to take share, two, and our ability to grow new things, three. So, you're seeing some of that, or really all three of those in our order rate. As we mentioned, we did build backlog during the quarter, so on a natural basis, sales could have been a little bit higher in this quarter, but those will be satisfied in the next quarter.
Joe: Yes, I would say a couple of things on that Joe. So first is that.
Speaker Change: We're the largest in the market. So obviously, we're going to be affected by the market.
Speaker Change: Our growth algorithm is straightforward so the impact on the market one it's our ability to take share too and it's our ability to grow new things III. So so youre seeing some of that or really all three of those in our in our order rate.
Speaker Change: <unk>.
Speaker Change: As we as we mentioned we did build backlog during the quarter so on a natural basis.
Speaker Change: Sales could have been a little bit higher in this quarter, but those will be satisfied in the next quarter.
Neil M. Ashe: We, as we've talked about a fair amount, we are, as you know, I am data-focused, and so I prefer to talk about what we know versus what we think. So, the regression work that we do on a consistent basis would demonstrate that we are outperforming what our historical performance would suggest that we would do. So, that would, you know, that is the culmination of all of the work that we've done before. We have not been able to convincingly predict exactly where, or use an outside, specific single outside variable to consistently predict what the market will be.
Speaker Change: As we've talked about a fair amount we are.
Speaker Change: As you know I am data focused and so I prefer to talk about what we know versus what we think so.
Speaker Change: The regression work that we do on a consistent basis would demonstrate that we are outperforming what our historical performance would suggest that we would do.
Speaker Change: So that would.
Speaker Change: That is the culmination of all of that we've done before we have not been able to to convince convincingly predict exactly where it used in outside the.
Speaker Change: The specific single outside.
Speaker Change: Variable to consistently predict what.
Speaker Change: What the market will be so Abi for example is just one of the metrics that we use Dodge is but one of the metrics that we use when we consolidate those and we are we are we do this every month and we and we iterate and we tried to make our model better and better and it is getting better and the other takeaway is that we're at.
Neil M. Ashe: So, ABI, for example, is just one of the metrics that we use; DODGE is another one of the metrics that we use. And we consolidate those, and we do this every month, and we iterate, and we try and make our model better and better. And it is getting better, and the other takeaway is that we're outperforming what the data would suggest that we would do, which means that we are outperforming both our past and industry metrics.
Speaker Change: Performing what.
Speaker Change: What the what the data would suggest that that we would do which which means that we're outperforming our both our past and the industry metrics.
Neil M. Ashe: And then just one clarification related to the production that you talked about in the quarter. Can you just size what that revenue impact is and do you expect to fully capture that in the fourth quarter? Yeah, so, we've talked about this during kind of the last couple years as things have whipsawed around. We have orders, those turn into backlog, we produce that, and then it's, it's shipped. So we don't have the phenomenon where orders are canceled.
Speaker Change: And then just one clarification related to the production that you talked about in the quarter can you just size what that revenue impact is and do you expect to fully.
Speaker Change: Capture that in the in the fourth quarter.
Speaker Change: Yes, so so and we've talked about this during kind of the.
Speaker Change: The last couple of years as things have whipsawed around.
We we have orders those turns and those turn into backlog, we produced that and then it shifts. So we don't have a phenomenon where orders are canceled so orders orders our orders for us. So it's just a matter of of of.
Neil M. Ashe: So orders, orders are orders for us. So it's just a matter of when we ship. The second thing that I'd highlight is that we, we're focused on, as we've said, returning the lighting business to growth. That'll happen in either this quarter or the next quarter, based on, based on how we, we, we trend that out.
When we ship the second thing I'd highlight is that we were focused on as we've said returning the lighting business to growth that will happen in either this quarter or the next quarter based on based on how we.
Neil M. Ashe: So, you know, we like to focus on the longer term and our ability to grow this business. We're, we're confident in our ability to continue to grow the lighting business, and we're confident in our operating performance and our ability to continue that as well.
Speaker Change: We trend that out so so.
Speaker Change: We like to focus on the longer term and our ability to.
Speaker Change: This business, where we're confident in our ability to continue to grow the lighting business and.
And we're confident in.
Speaker Change: In our operating performance and our ability to continue that as well.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Joe O'Day: Thank you. Our next question comes from the line of Jeffrey Sprague with Vertical Research. Hey, thank you. Good morning, everyone.
Speaker Change: Our next question comes from the line of Jeffrey Sprague with vertical research partners.
Jeffrey Todd Sprague: Hey, Thank you good morning, everyone.
Jeffrey Todd Sprague: I just, you know, I want to come back to kind of production just because, Yeah, it's actually a little surprising to hear in an environment where, you know, demand isn't particularly strong, right? It's not like you're trying to ramp up to some higher level and then, Um, to hear it's multiple things, not like one thing, perhaps like a supplier dropping the ball. So can you give us a little bit more color on what happened? And you said a little bit about a quarter or two you could get it cleaned up.
Jeffrey Todd Sprague: Just wanted to come back to kind of the production just because.
Speaker Change: It's actually a little surprising to hear in an environment, where demand isn't particularly strong right. It sounds like you are trying to ramp up to some higher level and then.
Jeffrey Todd Sprague: Tahira.
Tahira: Multiple things not one thing, perhaps like a supplier dropping the ball.
Speaker Change: So can you give us a little bit more color on what happened.
Tahira: And.
Speaker Change: Sort of set a little bit about Q.
In a quarter or two to get it cleaned up but just kind of sounds a bit surprising that this would've manifested across several different inputs.
Neil M. Ashe: But it just kind of sounds a bit surprising that this would have manifested itself across several different. Yeah, Jeff, first of all, I want to emphasize what I said, which is it's not alarming. And we have now developed a consistency of communication where we'll tell you exactly what we're thinking about, and we won't throw either suppliers under the bus or not answer the question. There is nothing alarming about this production.
Jeff: Yes, Jeff first of all I want to emphasize what I said, which is it's not alarming and we have now developed the consistency of communication, where we will tell you exactly kind of what we're thinking about and we won't throw.
Jeff: Kind of either suppliers under the bus or or.
Jeff: Or.
Jeff: Not answered the question there is nothing alarming about this production we had a the core issue is a.
Neil M. Ashe: We had a, the core issue is mild labor. We didn't, a labor issue, which is we didn't ramp up labor as fast as we needed to because we didn't think we would need to ramp it up that fast. We can solve that problem in relatively short order and solve that going forward. So, as I said, there is nothing alarming about this and its impact going forward.
Jeff: Is mild labor we didn't.
Jeff: Labour issue, which is we didn't ramp up labor as fast as we as we needed to because.
Jeff: We didn't think we would need to ramp it up that fast we can solve that problem in relatively short order.
Jeff: And solve that going forward. So this is not as I said there is nothing alarming about this.
Jeff: This.
Jeff: And its impact going forward, so we feel really good.
Neil M. Ashe: So we feel really good. I'll tell you, I'll preview what our internal communication is, which we're sending out in about 30 minutes, which is that as we've improved our company, our expectations for our own performance are higher. So we are holding ourselves to a higher standard.
Jeff: I will tell you I'll preview, what our internal communication is which we which we are sending out in about 30 minutes, which is that as we've improved our company.
Jeff: Our expectations for our own performance are higher.
Jeff: So we are holding ourselves to a higher standard and so so I.
I don't think many companies would have called out that we missed our production targets this quarter, but but our expectations for our own performance are higher and so and our team's expectations for our performance are higher so.
Neil M. Ashe: And so, I don't think many companies would have called out that we missed our production targets this quarter. But, our expectations for our own performance are higher, and so, and our team's expectations for our performance are higher. So, so again, nothing alarming here.
Jeff: So again nothing alarming here, we will sort this out and and go forward.
Speaker Change: And then on the other side of the equation Neal the gross margins continue to look impressive which.
Neil M. Ashe: We will sort this out and go forward. And then on the other side of the equation, Neil, the gross margins continue to look impressive, which, you know, I hear is a production problem. I think down gross margins, not up gross margins, right? At one point in the discussion today, you said design select is not the primary driver. Can you just maybe elaborate on what it is, you know, you pointed to product vitality, service levels, and productivity. I mean, is that the order of magnitude?
Speaker Change: Here production problem, I think down gross margins not up gross margins right.
Speaker Change: One point into discussion today, you said design select us not the primary driver.
Speaker Change: Can you just maybe elaborate what.
Speaker Change: You pointed to product vitality service levels and productivity I mean is that is that the order of magnitude.
Jeffrey Todd Sprague: Is there anything in particular that stands out on the gross margin? I know, you know, the direct price discussion is a bit anathema, but maybe just talk about what's going on on the price-cost side. Yeah, so let's spend a few minutes on this, Jeff. Thanks for the question.
Speaker Change: Is there anything in particular that stands out on the gross margins I know.
Speaker Change: Direct price discussion is a bit anathema, but maybe just talk about what's going on.
Speaker Change: On the price cost side in aggregate.
Yes, so, let's let's do spend a few minutes on this Jeff thanks for for.
Speaker Change: The question.
Neil M. Ashe: So let me first start with product vitality, and I'll use the frame that we focused on as an example. That is, and we've talked about several big picture projects over the course of the last couple of years that have done something similar, which is we are delivering a higher-value product to the marketplace with significantly less content. So, you know, as you saw in the images, this is literally a snap-together fixture that replaces a panel in the ceiling of an office or a K through 12 school, for example.
Speaker Change: So let me first start with product vitality and I'll use the frame, which we focused on as an example that is.
Speaker Change: We've talked about several big fixture projects over the course of the last couple of years that have done something similar which is.
Speaker Change: We are delivering a higher <unk>.
Speaker Change: <unk> product to the marketplace with significantly less content. So.
Speaker Change: As you saw in the images.
Speaker Change: This is literally a snap together fixture that replaces a panel in.
Speaker Change: In the ceiling of an office or or a K 12 School for example.
Neil M. Ashe: So there's significantly less content in that fixture, so obviously, our ability to drive margin with less material is much higher. Second, I would say, on the pricing front, we have been, as we've said, become very strategic about how we price. And our strategy is very clear.
Speaker Change: So there is significantly less content in that fixture. So obviously, our ability to drive margin with less material is is much higher.
Speaker Change: Second I would say on the pricing front, we have been.
Speaker Change: As we've said we've become very strategic about it.
Speaker Change: How we price so.
Neil M. Ashe: On the contractor select portfolio, which is 300 high-volume products that are designed to be stocked and resold, we are very competitive from a price perspective, although not the lowest price, and we are the most competitive from a value perspective, in other words, what you get for your money. So, with switchable technology and other things, we've created an opportunity for the end user to be able to trust those products in each of their projects, and we've created an opportunity for distributors to earn higher returns, because when they focus on our products, they know that they don't have to carry as much inventory. They also don't have to carry as much exogenous inventory, in other words, inventory of other folks.
Speaker Change: Our strategy is very clear on the contractor select portfolio, which is 300 high volume products, which are designed to be stocked and resold.
Speaker Change: We are.
Speaker Change: We are very competitive from a from a price perspective, although not not the lowest price.
Speaker Change: And we are the most competitive from a value perspective in other words, what you get for your money so with switchable technology.
Speaker Change: Other things we've created an opportunity for the end user to be able to trust those products in each of their projects and we've created the opportunity for distributors to earn higher returns because when they focus on our products. They know that they don't have to carry as much inventory. They also don't have to carry as much.
Speaker Change: <unk> its inventory in other words inventory of other of other folks the third thing I would highlight which I addressed a little bit earlier in one of the questions was.
Neil M. Ashe: The third thing I'd highlight, which I addressed a little bit earlier in one of the questions, was the now fully integrated performance of our LDLEDs and OptoTronics drivers. So by controlling the electronics in our luminaires and our controls, we have largely completed that vertical integration, which gives us a number of advantages, among them is margin. And then finally, we continue to have the opportunity to increase service levels and drive productivity. So, as I mentioned earlier in the call, we're on a path here. We're not at a destination yet.
The now fully integrated performance of our <unk> drivers so by controlling the electronics.
Speaker Change: In our in our luminaries in our controls we have we have largely completed that vertical integration, which gives us a number of advantages among them is margin.
Speaker Change: So and then finally, we continue to have opportunity to to increase service levels and drive productivity. So as I mentioned earlier in the call where we're on a we're on a path here, we're not at a destination and so.
Neil M. Ashe: And each one of those is working together, and the cumulative effect of that is what we think is really good performance. Great. Thanks for that.
Speaker Change: And each one of those is working together and the cumulative effect of that is is what we think is really good performance.
Jeffrey Todd Sprague: I'll leave it there. Thanks, Jeff. So I'm showing no further questions in queue at this time. I'd like to turn the call back to Neil Ashe for any, Thank you.
Speaker Change: Great. Thanks for that I'll leave it there.
Jeff: Thanks, Jeff.
Speaker Change: Thank you.
Speaker Change: 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.
Neil M. Ashe: We appreciate you all joining us today. So, as we've talked about consistently, we are focused on returning our lighting and lighting control business to growth while we continue to drive margins and strong cash flow. We feel like our Spaces business' performance is impressive and growing, and we have opportunities to continue to grow our portfolio over time. So, with that, we will get back to work and deliver on the fourth quarter, and we'll talk to you soon. Hope you all have a good day.
Neil M. Ashe: Thank you. We appreciate you all joining us today. So so as we've talked about consistently we are focused on returning our lighting lighting control business to growth, while we continue to drive margins and strong cash flow, we feel like our space business is performance is impressive and <unk>.
Operator: This concludes today's conference. Thank you for participating. You may now go.
Neil M. Ashe: Growing and we have opportunities to continue to grow our portfolio over time, so with that we will get back to work and and deliver on the fourth quarter and we will talk to you. Soon hope you all have a good day.
Operator: This concludes today's conference call.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Operator: Thank you for participating. You may now disconnect.
Operator: Thanks for watching! Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music, [inaudible] ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? At this time, all participants are in a... After the speaker's presentation, the company will conduct a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Charlotte McLaughlin. Vice President of Investor Relations. Charlotte, please go ahead.
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Speaker Change: Good morning, and welcome to the acuity brands fiscal 2024 third quarter earnings call.
Charlotte McLaughlin: Thank you. Good morning, and welcome to the Acuity Brands Fiscal 2024 Third Quarter Earnings Call. On the call with me this morning are Neil Ashe, our Chairman, President, and Chief Executive Officer, and Karen Holcom, our Senior Vice President and Chief Financial Officer. Today's call will include updates on our strategic progress and on our fiscal 2024 third quarter performance. There will be an opportunity for Q&A at the end of this call. As a reminder, some of our comments today may be forward-looking statements. We intend these forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as detailed on slide 2 of the accompanying presentation.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the Speakers' presentation, the company will conduct a question and answer session.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to Charlotte Mclaughlin, Vice President of Investor Relations Charlotte. Please go ahead.
Charlotte McLaughlin: Thank you.
Charlotte McLaughlin: Reconciliations, a certain non-gap financial metric, with their corresponding gap measures are available in our 2024 third quarter earnings release and Supplemental Presentations, both of which are available on our Investor Relations website at www.investors.acuitybrands.com. Thank you for your interest in Acuity Brands. I will now turn the call over to Neil Ashe.
Charlotte McLaughlin: Good morning, and welcome to the acuity brands fiscal 2024 third quarter earnings call.
Speaker Change: On the call with me this morning on the latch, Chairman, President and Chief Executive Officer.
Speaker Change: And Karen <unk>, our senior Vice President and Chief Financial Officer.
Speaker Change: Today's call will include updates on our strategic progress.
Speaker Change: In our fiscal 2024 third quarter performance.
Speaker Change: There will be an opportunity for Q&A at the end of this call.
Speaker Change: As a reminder.
Speaker Change: Mind, you some of our comments today may be forward looking statements.
Speaker Change: We intend these forward looking statements to be covered by the safe Harbor provisions.
Speaker Change: <unk> Securities Litigation Reform Act of 90 95.
Speaker Change: As detailed on slide two of the accompanying presentation.
Speaker Change: Reconciliations of certain non-GAAP financial metrics with their corresponding GAAP measures.
Speaker Change: Our available in our 2024 third quarter earnings release.
Speaker Change: And supplemental presentation.
Speaker Change: Both of which are available on our Investor Relations website at Www Dot investors does acuity brands Dot com.
Speaker Change: Thank you for your interest in acuity brands.
Speaker Change: I will now turn the call over to Neil Ash.
Neil M. Ashe: Thank you, Charlotte, and thank you all for joining us this morning. In our fiscal 2024 third quarter, we delivered solid results. We increased our adjusted operating profit, Adjusted Operating Profit Margin, and Adjusted Diluted Earnings per Share.
Neil M. Ashe: Thank you Charlotte and thank you all for joining us this morning.
Neil M. Ashe: And our fiscal 2020 for third quarter, we delivered solid results.
Neil M. Ashe: We increased our adjusted operating profit adjusted operating profit margin and adjusted diluted earnings per share.
Neil M. Ashe: We generate strong free cash flow, and we allocate capital effectively to drive value. In our lighting and lighting controls business, we continue to expand profitability while we focus on returning the business to growth. In our intelligence spaces business, the growth rate and overall performance remain impressive. In ABL, we increased our adjusted operating profit by $2 million to $162 million and increased our adjusted operating profit margin 100 basis points to 18% on $42 million left sale.
Neil M. Ashe: We generate strong free cash flow and we allocated capital effectively to drive value.
And our lighting and lighting controls business, we continue to expand profitability, while we focus on returning the business to growth.
Neil M. Ashe: And our intelligence spaces business the growth rates and overall performance remains impressive.
Neil M. Ashe: And ABL, we increased our adjusted operating profit of $2 million to $162 million and increased our adjusted operating profit margin 100 basis points to 18% on $42 million less sales.
Neil M. Ashe: These results are being driven by our ongoing efforts to increase product vitality, elevate service levels, use technology to improve and differentiate both our products and how we operate the business, and to drive productivity. We define product vitality as the combination of new product introductions and improvements to our existing portfolio, with the intention of making products that are more valuable for our customers and more profitable for us. A great example of this is the Lithonia frame, which we recently introduced to the market.
Neil M. Ashe: These results are being driven by our ongoing efforts to increase product vitality elevated service levels use technology to improve and differentiate both our products and how we operate the business and to drive productivity.
Neil M. Ashe: We defined product vitality as a combination of new product introductions and improvements to our existing portfolio.
Neil M. Ashe: With the intention of making products that are more valuable for our customers and more profitable for us.
Neil M. Ashe: A great example of this is the <unk> frame, which we recently introduced to the market.
Neil M. Ashe: This luminaire is a modern and sustainable alternative to traditional LED panels and can be used in all indoor applications, including commercial offices and K-12 schools. Frame offers our customers value as a result of three things. The first is its flexibility of design. The frame comes in three different size options with switchable technology to offer different lumen outputs and color temperatures.
Neil M. Ashe: This luminaire as a modern and sustainable alternative to traditional led panels and can be used in all indoor applications, including commercial office in K 12 schools.
Neil M. Ashe: Frame offers our customers value as a result of three things.
Neil M. Ashe: The first is its flexibility of design.
Neil M. Ashe: To frame comes in three different size options with switchable technology to offer different lumen output and color temperatures.
Neil M. Ashe: The second is it slightly design and patented snap connections that allow for quick assembly and ease of installation.
Neil M. Ashe: And the third is that a costless to packaging shift as a result of its minimal sustainable packaging.
Neil M. Ashe: The second is its lightweight design and patented snap connections that allow for quick assembly and ease of installation. And the third is that it costs less to package and ship as a result of its minimal, sustainable packaging. I'd now like to spend a few minutes talking about our differentiated product portfolio, Made to Order, Design Select, and Contractor, and how they are creating the most effective way for our end users and contractors to get what they need, when they need it, for their specific project. The majority of our products are made-to-order, which uses our entire portfolio to create limitless design options for our customers. From concept to creation, we meet their requirements. I'd like to share a few examples with you.
Neil M. Ashe: I would now like to spend a few minutes talking about our differentiated product portfolios.
Neil M. Ashe: Need to order design select and contractor select and how they are creating the most effective way for our end users and contractors to get what they need.
Neil M. Ashe: When they need it for their specific projects.
Neil M. Ashe: The majority of our products are made to order, which uses our entire portfolio to create limitless design options for our customers.
Neil M. Ashe: From concept to creation, we meet their requirements.
I'd like to share a few examples with you.
Neil M. Ashe: We have been working on the restoration of Michigan Central Station in Detroit, where we took the original lighting blueprints from 1912 and recreated them as current generation LED fixtures. When combined with our controls, these fixtures deliver energy savings and create distinct event lighting to deliver a completely unique solution. We are also able to adapt our existing lighting and lighting controls portfolio. For example, this quarter, we met the retrofit requirements of a large retail customer by using the base design of several key fixtures and combining them with our controls to create a unique tailored solution. And finally, we have specialty brands known for innovation, like Alight, Luminance, and Eureka, which meet the needs of lighting specifiers in different spaces, ranging from offices to healthcare to schools.
Neil M. Ashe: We have been working on the restoration of the Michigan Central station in Detroit, where we took the original lighting blueprints from 1912 and recreated them as current generation led fixtures.
Neil M. Ashe: When combined with our controls these fixtures deliver energy savings and create distinct event lighting to deliver a completely unique solutions.
Neil M. Ashe: We are also able to adapt our existing lighting and lighting controls portfolio.
Neil M. Ashe: For example, this quarter, we met our retrofit requirements of a large retail customer by using the base design of several key fixtures and combining them with our controls to create a unique tailored solutions.
Neil M. Ashe: And finally, we have specialty brands known for innovation like a light luminous and Eureka, which meet the needs of lighting specifier in different spaces, ranging from offices to healthcare to schools.
Neil M. Ashe: Next, Design Select takes the limitless design options from made to order and curates them into an offering that delivers a highly productive approach to project design with ease of selection and service predictability. Whether a customer needs their products in three weeks or three months, we are able to satisfy their timeline. We deliver highly configurable product options for superior solutions by incorporating a broad portfolio of our trusted brands and offering in-light embedded control. And the final part of our differentiated portfolio is Contractor Select. About 300 high-volume products that are used in common, everyday lighting applications designed to be stocked and resold.
Neil M. Ashe: Next design select takes the limitless design options for made to order and curious them into an offering that delivers a highly productive approach to project designed with ease of selection and service predictability.
Neil M. Ashe: Whether a customer needs their products in three weeks or three months, we were able to satisfy their timelines.
Neil M. Ashe: We deliver highly configurable product options for superior solutions by incorporating a broad portfolio of our trusted brands and offering enlighten embedded controls.
Neil M. Ashe: And the final part of our differentiated portfolio is contractor select.
Neil M. Ashe: About 300 high volume products that are used in common everyday lighting applications designed to be stocked and resold.
Neil M. Ashe: We have been able to create a portfolio that offers quality products that our customers want at competitive prices, while at the same time allowing our distributor partners to achieve higher returns. We also continue to make investments for future growth, prioritizing new verticals where we have not historically competed or where we are under-penetrated. For example, we have recently entered the refueling vertical, which includes service stations, convenience stores, and quick service restaurants.
Neil M. Ashe: We have been able to create a portfolio that offers quality products that our customers want a competitive prices while at the same time, allowing our distributor distributor partners to achieve higher returns.
Neil M. Ashe: We also continue to make investments for future growth prioritizing new verticals, where we have not historically competed for where we are underpenetrated.
Neil M. Ashe: We have recently entered the refueling vertical which includes service stations convenience stores and quick service restaurants.
Neil M. Ashe: We are reimagining the customer experience using solutions specifically developed for these applications, in addition to our other existing products from our Lighting and Lighting Controls portfolio. This is a vertical where we have not broadly competed, and earlier this week, we announced that we have signed one of the leading independent sales agents, positioning us well to compete in this established and growing market. This builds upon our discussion last quarter about entering the horticulture market.
Neil M. Ashe: We are re imagining the re imagining the customer experience using solutions specifically developed for these applications. In addition to our other existing products from our lighting and lighting controls portfolio.
Neil M. Ashe: This is a vertical where we have not broadly competed and earlier. This week, we announced that we have signed one of the leading independent sales agents positioning us well to compete in this established and growing market.
Neil M. Ashe: This builds upon our discussion last quarter around entering the horticulture market.
Neil M. Ashe: This is another example of a vertical where we have not historically competed and where we have long-term opportunities for growth. We continue to be recognized by the industry. This quarter, we were awarded three Red Dot Design Awards for product design.
Neil M. Ashe: This is another example of a vertical where we have not historically competed and where we have a long term opportunities for growth.
Neil M. Ashe: We continue to be recognized by the industry.
Neil M. Ashe: This quarter, we were awarded three Red Dot design award for product design.
Neil M. Ashe: One of the most sought-after distinctions for design and quality. We won for Inline by Luminous, which we profiled in our first quarter earnings call, Atoll by Eureka, and Mochi by Cyclone.
Neil M. Ashe: One of the most sought after distinctions for design and quality.
We won for in line by luminous, which we profiled in our first quarter earnings call.
Neil M. Ashe: Atoll is a high-performance ring fixture with an elevated design that produces an evenly distributed glow and is available with multiple size and mounting options for use in commercial spaces and other indoor environments. 2024 marks the 10th consecutive year that our Eureka brand has won a Red Dot Design Award, and Atoll brings its total product wins in this category to 20. MOCHI is a contemporary domed street light that offers precision illumination for use in infrastructure projects where safety is a priority, including cities, residential streets, and commercial buildings.
Neil M. Ashe: Told by Eureka and mochi by cyclone.
Neil M. Ashe: April is a high performance rig fixture with an elevated design that produces an evenly distributed glow and is available with multiple size and mounting options for use in commercial spaces and other indoor environments.
Neil M. Ashe: 2024 marks the 10th consecutive year that our Eureka brand has won a red Dot design award and <unk> brings a total product wins in this category to 'twenty.
Neil M. Ashe: Mochi as a contemporary Delmas Street life that offers precision illumination for use in infrastructure projects, where safety is a priority, including city residential streets and commercial buildings.
Neil M. Ashe: Its innovative design offers multiple configurations in addition to a patented latch that allows for easy maintenance access without compromising security. This is the first Red Dot win for our Cyclone brand. In addition, we were awarded 21 Bright Star Awards from LEDs Magazine, which acknowledges innovation in lighting, components, and controls for products across 14 of our brands, including Aculux, Hydrel, ElderLED, and Enlight. Now, moving on to our Intelligent Spaces group. Our mission in our intelligent spaces business is to make spaces smarter, safer, and greener through our strategy of connecting the edge to the cloud. DizTech has the best edge control devices in the market, while Atreus will be the best in cloud applications.
Neil M. Ashe: Its innovative design offers multiple configurations. In addition to our patented latch that allows for easy maintenance access without compromising security.
Neil M. Ashe: This is the first red Dot wind for our cyclone brand.
Neil M. Ashe: In addition, we were awarded 21 Bright Star Awards from Leds magazine, which acknowledges innovation of lighting components and controls for products across 14 of our brands, including <unk> Hydrogel elder led and enlighten.
Neil M. Ashe: Now moving onto our intelligent spaces group.
Neil M. Ashe: Our mission and our intelligent spaces business is to make spaces smarter safer and greener through our strategy of connecting the edge to the cloud this.
Neil M. Ashe: <unk> has the best as control devices in the market, while atreus will be the best in cloud applications.
Neil M. Ashe: In SPACES, we are focused on where we compete and what we can control to expand our addressable market. As part of our geographic expansion, this quarter, we continue to add systems integrator capacity in the UK, Australia, and Asia. We partner with the best SIs in specific geographies to sell our full suite of DISTECC and ATRIAS products. In May, we hosted our key SI partners and end users at our European Connect conference in Marseille. It was a great success.
Neil M. Ashe: In spaces, we are focused on where we compete and what we can control to expand our addressable market.
Neil M. Ashe: As part of our geographic expansion. This quarter, we continue to add systems integrator capacity in the U K, Australia and Asia.
Neil M. Ashe: We partner with the best size in specific geographies to sell our full suite of <unk> and <unk> products.
Neil M. Ashe: In May we hosted our key Si partners and end users at our European connect conference in Marseille.
Neil M. Ashe: It was a great success, and we look forward to hosting our North American connect conference in Nashville later this year.
Neil M. Ashe: And we look forward to hosting our North American Connect Conference in Nashville later this year. At CONNECT, the DISTECC Recense Move Sensor that we discussed in the first quarter continued to generate positive reviews. As a reminder, this is an advanced 7-in-1 ceiling-mounted sensor that is able to detect occupancy and provide feedback on occupancy requirements in built spaces. We also showcased our refrigeration offering, which included the upgraded DISTECK Key to Therm Smart Access, a personalized, secure portal that provides real-time refrigeration system data that can troubleshoot system issues, prevent unnecessary site visits, and save our customers money. The device talks to all DISTEC Key2Therm sensors and controls and allows on-site and remote monitoring for one or multiple site locations.
Neil M. Ashe: At connect the district resets move sensor that we discussed in the first quarter continued to generate positive reviews. As a reminder, this is an advanced 701 ceiling mounted sensor that is able to detect occupancy and provide feedback on occupancy requirements and build spaces.
Neil M. Ashe: We also showcased our refrigeration offering which included the upgraded <unk> key to <unk> smart access a personalized secure portal that provides real time refrigeration system data that can troubleshoot system issues prevent unnecessary site visits and save our customers money.
Neil M. Ashe: The device talks to all <unk> sensors, and controls and allows onsite and remote monitoring for one or multiple site locations.
Neil M. Ashe: And this quarter, our SPACES products received recognition from several industry leaders. Our DISTEC Resets Move won Best AI Tech Innovation for Intelligent Buildings at IBECON 2024 last year, having also won an Excellence Award in the 2024 Electrical Review and Data Center Review earlier in the quarter. Our DISTECC ECLIPSE APEX controller won a product of the year award at the 2024 Consulting Specifying Engineer Award. And Atrius won Best ESG and Climate Reporting Software from ESG Investing Magazine for the second consecutive year and won Top Products of 2024 by E&E Leader.
Neil M. Ashe: And this quarter our spaces products received recognition from several industry leaders.
Neil M. Ashe: Our distinct resets move one best AI Tech innovation for intelligent buildings at <unk> 2024 last week, having also won an excellence award in the 2024 electric overview and datacenter review earlier in the quarter.
Our distinct controls eclipsed apex controller, when a product of the year award at the 2024 consulting specifying engineer awards.
Neil M. Ashe: And Atreus won best ESG and climate reporting software from ESG investing magazine for the second consecutive year and won top products of 2024 by E&E leader.
Neil M. Ashe: Now, turning to our Outlook. In our lighting business, our order rate continued to grow year over year in the third quarter. We built a backlog as our orders exceeded our shipments. This backlog will be served in the coming quarter.
Neil M. Ashe: Now turning to our outlook.
Neil M. Ashe: In our lighting business, our order rate continued to grow year over year in the third quarter.
Neil M. Ashe: We built backlog as our orders exceeded our shipments.
Neil M. Ashe: This backlog will be served in the coming quarters.
Neil M. Ashe: As we enter the fourth quarter, the order rate trend is likely to continue, and we will remain focused on returning the business to growth while expanding margins and generating strong free cash flows. Our spaces business continues to grow impressively and is becoming a more important part of our company. Our performance is and continues to be strong, and we will continue to allocate capital to expand our addressable market. Now, I'll turn the call over to Karen, who will give you an update on our third quarter performance. Thank you, Neil, and good morning to everyone on the call.
Neil M. Ashe: As we enter the fourth quarter. The order rate trend is likely to continue and we will remain focused on returning the business to growth, while expanding margins and generating strong free cash flow.
Neil M. Ashe: Our space business continues to grow impressively and is becoming a more important part of our company.
Neil M. Ashe: Our performance is and continues to be strong and we will continue to allocate capital to expand our addressable market.
Speaker Change: Now I'll turn the call over to Karen who will give you an update on our third quarter performance.
Karen J. Holcom: Thank you Neal and good morning to everyone on the call.
Karen J. Holcom: We continue to deliver solid performance in our third quarter, with both our lighting and spaces businesses delivering margin improvements. We increased our adjusted diluted earnings per share, and we generated strong year-to-date operating cash flow. We allocated capital effectively and continue to make progress on our strategic priorities. For total AYI, we generated net sales in the third quarter of $968 million, which was $32 million, or 3% below the prior year, as a result of lower net sales in our lighting and lighting controls business.
Karen J. Holcom: We continued to deliver solid performance in our third quarter.
Karen J. Holcom: Our lighting and space businesses delivering margin improvements.
Karen J. Holcom: We increased our adjusted diluted earnings per share and we generated strong year to date operating cash flow.
Karen J. Holcom: We allocated capital effectively and continue to make progress on our strategic priorities.
Karen J. Holcom: For total a yi, we generated net sales in the third quarter of $968 million.
Karen J. Holcom: Which was $32 million or.
Four 3% below the prior year as a result of the lower net sales in our lighting and lighting controls business.
Karen J. Holcom: Our SPACES business continued to experience strong growth of 15% in the quarter. Additionally, we continue to deliver year-over-year margin improvement. During the third quarter, our adjusted operating profit was up $4 million from last year on a $32 million decline in sales, and we expanded our adjusted operating profit margin to 17.3%, an increase of 100 basis points from the prior year. This increase was driven largely by a significant year-over-year improvement in our gross profit margin as we continue to execute our strategy and drive margin through product vitality, the management of price and cost, and productivity improvement.
Karen J. Holcom: Our stainless business continued to experience strong growth of 15% in the quarter.
Karen J. Holcom: We continued to deliver year over year margin improvement.
Karen J. Holcom: During the third quarter, our adjusted operating profit was up $4 million from last year on the $32 million decline in sales.
Karen J. Holcom: Standard our adjusted operating profit margin to 17, 3% an increase of 100 basis points from the prior year.
Karen J. Holcom: This increase was driven largely by the significant year over year improvement in our gross profit margin as we continued to execute our strategy and drive margin through product vitality and management of price and cost and productivity improvements.
Karen J. Holcom: During the quarter, our adjusted diluted earnings per share of $4.15 increased 40 cents or 11% over the prior year due to higher net income and lower shares outstanding. In ABL, net sales were $899 million, a decrease of 5%.
Karen J. Holcom: During the quarter, our adjusted diluted earnings per share at $4 15.
Karen J. Holcom: Increased <unk> 40, or 11% over the prior year due to higher net income and lower shares outstanding.
Karen J. Holcom: In ABL net sales were $899 million a.
Karen J. Holcom: A decrease of 5% however, as Neil said earlier in the call our order rates are higher year over year.
Karen J. Holcom: However, as Neil said earlier in the call, our order rates are higher year over year. While the independent sales network was down as a result of the challenging comparables last year, this quarter was a good quarter for corporate accounts, which benefited from a large retail relight project. Adjusted operating profit increased to $162 million on lower net sales, while we delivered an improved adjusted operating profit margin of 18%, a 100 basis point improvement over the prior year.
Speaker Change: While the independent sales network was down as a result of the challenging Comparables last year. This quarter was a good quarter for corporate accounts, which benefited from a large retail re light project.
Speaker Change: Adjusted operating profit increased to $162 million on lower net sales.
Speaker Change: While we delivered improved adjusted operating profit margin of 18%, a 100 basis point improvement over the prior year.
Karen J. Holcom: Net sales and intelligence spaces for the third quarter were $76 million, an increase of 15% as this set continued to grow. The integration of Key2Therm is now complete, and Key2Therm products are now a line under the GISTEC Controls product portfolio.
Speaker Change: Net sales in intelligent spaces for the third quarter were $76 million, an increase of 15% as <unk> continued to grow.
Speaker Change: The integration of <unk> is now complete and key to turn products are now product line under the disc that controls product portfolio.
Karen J. Holcom: Adjusted operating profit in intelligence spaces was $17 million, with the adjusted operating profit margin at 22.9%, a 340 basis point improvement over the prior year. Now, turning to our cash flow performance. We generated $445 million of cash flow from operating activities year-to-date, and we are earning attractive returns on the cash that we have on our balance sheet. We continue to allocate capital consistent with our priorities. Year-to-date, we have invested $41 million in capital expenditures.
Speaker Change: Adjusted operating profit and intelligent spaces was $17 million with the adjusted operating profit margin at 22, 9%, a 340 basis point improvement over the prior year.
Speaker Change: Now turning to our cash flow performance.
Speaker Change: We generated $445 million of cash flow from operating activities year to date, and we are earning attractive returns on the cash that we have on our balance sheet.
Speaker Change: We continue to allocate capital consistent with our priorities year.
Speaker Change: Year to date, we invested $41 million in capital expenditures, we acquired the assets of arise horticulture lighting.
Karen J. Holcom: We acquired the assets of Arise Horticulture Lighting. We increased our dividend per share by 15% and allocated approximately $89 million to repurchase over 454,000 shares. Since the beginning of the fourth quarter of fiscal 2020, we have 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 then outstanding shares. We continue to demonstrate solid performance. We delivered improved margins and increased adjusted diluted earnings per share.
Speaker Change: We increased our dividend per share, 15% and allocated approximately $89 million to repurchase over 454000 shares.
Speaker Change: Since the beginning of the fourth quarter of fiscal 2020, we have repurchased approximately $9 5 million shares at an average price of about $145 per share, which was funded by organic cash flow.
Speaker Change: This amounts to about 24% of the then outstanding shares.
Speaker Change: We continue to demonstrate solid performance, we delivered improved margins and increased adjusted diluted earnings per share.
Karen J. Holcom: We generated strong cash flow from operations, and we continued to allocate capital effectively. Thank you for joining us today. I will now pass you over to the operator to take your questions. Thanks. If you'd like to ask a question at this time, please press star 1 1 on your touchtone. Our first question comes from the line of Christopher Glynn with Oppenheimer.
Speaker Change: We generated strong cash flow from operations and we continue to allocate capital effectively.
Speaker Change: Thank you for joining us today I will now pass you over to the operator to take your questions.
Speaker Change: Thank you.
Speaker Change: If you'd like to ask a question at this time. Please press star one one on your Touchtone telephone.
Speaker Change: Our first question comes from the line of Christopher Glynn with Oppenheimer. Your line is now open.
Christopher D. Glynn: Thanks, Good morning.
Christopher D. Glynn: Good morning; I was looking at the continuing gross margin performance and all the execution there. Curious. You know, the service model streamlining initiatives, particularly the deployment of design select, are pacing faster than expectations, perhaps. Hey, good morning, Chris.
Christopher D. Glynn: With.
Speaker Change #100: Looking at the continuing gross margin performance in all of the execution there.
Curious if.
Speaker Change #101: The service model streamlining initiatives, particularly the.
Speaker Change #101: Deployment of design select is facing pacing faster than expectations, perhaps.
Neil M. Ashe: Thanks for the question. We're pleased with our performance on margin expansion. As you know, this has been a multi-year process, and it's been focused really on the strategy of product vitality, increasing service levels, using our technology to differentiate and how we operate the business, and then driving productivity. So, this is a point on that path. I'd really highlight product vitality and our ability, as we said in the prepared remarks, to both deliver more value to our end users as well as make products more profitable for us. So obviously, that's a number of things. Design Select is among those things.
Hey, good morning, Chris Thanks for the thanks for the question so.
Neil M. Ashe: It's actually pacing where we expect it, so it is not the primary driver of the improvement here, which highlights the trend that we're on and the length of the path we still have to travel. So we're pleased. I'd also highlight that, you will remember, we acquired the optotronics business from Osram, so we control more of the technology that is in our luminaires. That gives us significant flexibility both in our design and our operation. So we're pleased with the continued margin performance, and it is attributable to multiple different things working in harmony. Thanks; I appreciate all that color.
Speaker Change #102: We're pleased with our performance on on margin expansion as you know this has been a multiyear process and it's been focused really on the strategy of product vitality, increasing service levels, using our technology to differentiate and how we operate the business and then driving productivity. So so this is this is a point on that.
Speaker Change #102: On that path.
Speaker Change #102: I would highlight really around product vitality and our ability as we said in the prepared remarks to both deliver more value to the to our end users as well as make more.
Speaker Change #102: Make products more profitable for us. So so obviously thats a number of things designed select is among those things, it's actually pacing, where we expected. So it is not the primary driver of the of the.
Speaker Change #103: <unk> here, which highlights the trend that we're on.
Speaker Change #103: The length of the path, we still have to travel there.
Speaker Change #103: So we're pleased I'd also highlight that Youll remember, we acquired the <unk> business from <unk>. So we control more of the technology that is in our alumina heirs that gives us significant flexibility both in our design and in our operations. So.
Speaker Change #103: So we were pleased with the continued margin performance and and it is attributable to multiple different things working in harmony.
Christopher D. Glynn: And then the positive book to Bill, Notable, you know, an interesting caveat to the revenue being a little short of estimates out there. And I think it's the third straight quarter of positive year-over-year orders. I'm curious if the patterns, you know, weekly, monthly, are still pretty consistent, or perhaps they're getting a little more streaky in the first month or so... Yeah, so this quarter, as we said, our orders exceeded our shipments. The order rate has been relatively consistent throughout the year.
Speaker Change #104: Thanks, I appreciate all that color and then the positive book to Bill.
Speaker Change #104: Notable.
Speaker Change #105: And interesting caveat.
Speaker Change #106: The revenue being a little short of estimates out there and I think its third straight quarter of positive year over year orders.
Speaker Change #107: I'm curious if the patterns weekly monthly or still pretty consistent or perhaps they are getting a little more streaky and the front month or two.
Speaker Change #108: Yes so.
Speaker Change #109: So this quarter as we said our orders exceeded our shipments the order rate has been relatively consistent throughout the year. So as Karen mentioned in her remarks.
Neil M. Ashe: So, as Karen mentioned in her remarks, our production targets, we did not meet our production targets in the quarter, which is why we built backlogs, and why our orders exceeded our shipments. So we're working on that. We'll sort that out, obviously, going forward, and we will satisfy that backlog. In the big picture, we are cautiously optimistic about the future. The power of the diversity of our portfolio is really demonstrating itself both in this quarter and as we go forward.
Speaker Change #109: Our production.
Speaker Change #110: We did not meet our production targets in the quarter, which is why are we built backlog. So why our orders exceeded our shipments. So we are working on that will sort that out obviously going forward and and we will satisfy that backlog.
Speaker Change #110: Big picture.
Speaker Change #110: We are cautiously optimistic I would say about the about the future.
Speaker Change #110: The power of the diversity of our portfolio is really demonstrating itself both in this quarter and as we go forward. So.
Neil M. Ashe: So I'd highlight the corporate accounts business, where while that is the definition of streaky, to your question, because we meet large customers when they're ready. It's a very attractive piece of business that we are uniquely positioned to serve in the industry. So things like that have been streaky.
Speaker Change #110: I would highlight.
Speaker Change #110: The corporate accounts business, where.
Speaker Change #111: That is the definition of streaky to your question because.
Speaker Change #111: We meet large customers when they are ready, it's a very attractive piece of business that is that we are uniquely positioned to serve in the industry. So.
Speaker Change #111: So things like that have been streaky things like C&I have been relatively consistent so.
Neil M. Ashe: Things like C&I have been relatively consistent. So that builds us a strong foundation so that we can adapt to where opportunity is in the market. And then we'll continue to invest to add new areas of competition for the lighting business specifically. And we'll talk about spaces, I'm sure, later.
Speaker Change #111: So.
Speaker Change #111: That builds us a strong foundation, so that we can adapt to where opportunity is in the market and then we will continue to invest to add new areas of competition for the lighting business, specifically and we will talk about spaces I'm sure later, but but there we talked about border culture and petroleum so.
Neil M. Ashe: But there, we talked about horticulture and petroleum. So the streaky place, as Karen identified, was around corporate accounts, which is a very attractive piece of business for us. Okay, thank you. Our next question comes from the line of Ryan Merkel with William Blair. Your line is now open.
Speaker Change #111: So the Streaky places as Karen identified was around corporate accounts, which is a very attractive piece of business for us.
Speaker Change #112: Okay. Thank you.
Thank you.
Speaker Change #113: Our next question comes from the line of Ryan Merkel with William Blair. Your line is now open.
Ryan James Merkel: Hey, thanks for taking the questions. I wanted to ask as well about the order rate growth. Neil, can you talk about which end markets you're seeing positive trends and maybe by geography where things are a bit stronger? Yeah, I'll start, and Karen, add color as you see fit.
Ryan James Merkel: Hey, Thanks for taking the questions I wanted to ask as well on the order rate growth. Neil can you just talk about which end markets, you're seeing positive trends and maybe by geography, where it's more things are a bit stronger.
Speaker Change #114: Yes, I'll start and Karen.
Speaker Change #115: Color as you see as you see fit.
Neil M. Ashe: You know, let me first start with disaggregated revenue. We've seen consistency in the CNI channel, as I said earlier. So that's our agent project business throughout the country, and that has been stronger in areas where you would expect, like the South, areas where there is growth, you know, kind of in the country. Obviously, again, strength in corporate accounts and the opportunities that we have there, and longer term strength in our infrastructure.
Speaker Change #116: Let me first start by the Disaggregated revenue, we've seen consistency in the C&I channel as I said as I said earlier, so that's our agent project business throughout the throughout the country.
Speaker Change #116: And that has been stronger in areas, where you expect like the south areas, where there are growth.
Speaker Change #116: Kind of in the country.
Speaker Change #116: Obviously.
Speaker Change #116: Again, strengthen and corporate accounts and the opportunities that we have there.
Speaker Change #116: Longer term strength in our and our infrastructure. So we are taking longer lived.
Neil M. Ashe: So we are taking longer live orders, if you will, so that that is satisfy over a longer period of time than we have in the past. So, you know, we've talked about the city of Philadelphia in the Hall of Fame, for example. There are others that look and smell and smell like that.
Speaker Change #116: Orders, if you will so that satisfy over a longer period of time than we have in the past. So we've talked about the city of Philadelphia. The Hall of Fame. For example, there are others that that look and smell and smell like that so.
Neil M. Ashe: So, yes, I mean, we are not in a market where everything is up and to the right. But our diversity of opportunity is giving us the ability to continue to have a relatively consistent order rate. Karen, anything you'd like to add?
Speaker Change #116: No.
Speaker Change #116: Yes, I mean, it is not we are not in a market where everything is up into the right, but our diversity of opportunity is presenting us the ability to to continue to have.
Karyn: On a relatively consistent order rate karyn anything you'd like to add yes. The only thing I would like to add Ryan is that when we look ahead infrastructure continues to show positive signs, it's not landing yet, but the quoting activity is really strong. So as we look ahead I think we have the portfolio to service that business and see that as an.
Karen J. Holcom: Yeah, the only thing I would like to add, Ryan, is that when we look ahead, infrastructure continues to show positive signs, it's not landing yet, but quoting activity is really strong. So if we look ahead, I think we have the portfolio to service that business and see that as an opportunity for us. Okay, that's helpful. And then I want to go back to the comment, Neil, you made about not shipping maybe as well as you could have, and you're going to address that. Can you just talk about that? And then when do you think you'll solve it?
Karyn: <unk> for us.
Speaker Change #117: Got it Okay. That's helpful. And then I wanted to go back to the comment you made about not not shipping maybe as well as you could have and youre going to address that can you just talk about that and then when do you think you'll solve that.
Neil M. Ashe: Yeah, so as we said, our orders exceeded our shipments, which means we generated a backlog during the quarter. That backlog will be fulfilled and shipped. The reason is we didn't meet our daily production targets, and there are a handful of reasons for that, none of which are alarming, and we are in the process of addressing them all. So we'll sort those out over the course of this quarter and the next quarter, and we'll be back to where we want to be. All right, thanks, I'll pass it on.
Speaker Change #118: Yes, so so as we said our orders exceeded our shipments which means we.
Speaker Change #119: We generated backlog during the quarter that backlog will be executed and shipped.
Speaker Change #119: The reason is we we didn't meet our daily production targets and and there are a handful of reasons for that and none of which are alarming and and we are in the process of addressing them. All so so we'll sort those out and over the course of this quarter in the next quarter and we'll be back to where we want to be.
Speaker Change #119: <unk>.
Speaker Change #120: Alright, Thanks, I'll pass it on.
Ryan James Merkel: Thanks, Ryan. Our next question comes from the line of Tim Wohl. Your line is now disconnected.
Speaker Change #119: Alright.
Speaker Change #121: Thank you.
Speaker Change #124: Our next question comes from the line of Tim <unk> with Baird. Your line is now open.
Timothy Ronald Wojs: Hey, everybody. Good morning. Morning, Tim.
Speaker Change #122: Hey, everybody good morning.
Speaker Change #123: Good morning, Tim.
Neil M. Ashe: Hey, Neil, just to start, just on, you know, getting into kind of the refueling and kind of the C-STOR market. I guess. You know, maybe just if you could step back and kind of talk about maybe why Acuity didn't address that market in the first place and maybe the unit economics of that business and, you know, kind of compared to, you know, your existing portfolio. Yeah, so it's a good question.
Tim: Just to start just on getting into kind of the refueling and kind of the C store market I guess.
Speaker Change #125: Maybe just if you could step back and kind of talk about maybe why acuity didn't address that market in the first place and how maybe the unit economics of that business and kind of compare to.
Speaker Change #125: Out of your existing portfolio.
Neil M. Ashe: So, if you'll allow me, Tim, I'll just rise for a second to say that one of the perceptions about Acuity brand lighting and, in particular, our own is that because we're the largest in North America, we assume we're the largest in North America, which means we weren't always good at seeing the opportunities where we didn't compete. So, we are highly focused on where we do compete, and we historically were less focused on where we didn't compete.
Tim: Yes, so it's a good question. So if you'll allow me Tim I'll just I'll just.
Tim: Elevate for a second to say that I think one of the perceptions about acuity brands lighting and inclusive of our own is that because we are the largest in North America.
Tim: We assume we're the largest in North America, which means we werent always good at seeing the opportunities where we didn't compete so we are highly focused on where we do compete and and.
Tim: And we historically were less focused on where we didnt compete.
Neil M. Ashe: So, the refueling vertical is an example of where we didn't compete, and so we paid some attention, but not enough attention to what that business was. And they were, for any number of reasons, focused. We had all the other things to do, et cetera.
Tim: So the refueling vertical as an example of where we didnt compete and so we paid some attention, but not enough attention to to what that business was and they were for any number of reasons focus we had all of the other things to do et cetera.
Neil M. Ashe: As we've focused the company now on finding these opportunities to grow where we are either not competing or not competing fulsomely, we've started to identify rich niches where we want to compete, and verticals where we want to go compete. The refueling one is an obvious one. So, it's attractive because of the size of the ultimate market on an end basis, number one. Number two, it's an attractive competitive market with effectively limited competitors. So, we decided to enter that business organically because, obviously, we can create a ton of value by building an attractive-sized business in that vertical. So, we invented new fixtures that support the core of that business, which is canopy lighting. Those fixtures are at least as competitive, but in most cases, more competitive than what's currently in the marketplace.
As we focus the company now on finding these opportunities too.
Tim: Grow where we where we are either not competing or not competing fulsomely.
Tim: Started to identify rich niches, where we want to and verticals, where we want to go compete the refueling. One is a is an obvious one so.
Tim: It's attractive.
Tim: For the size of the of the ultimate market and user base.
Tim: And basis number one number two it's an attractive competitive market with effectively limited competitors.
Tim: So we decided to enter that business organically, because obviously, we can create a ton of value by by building an attractive size business in that vertical. So we invented new fixtures that that support the core of that which is canopy lighting.
Those fixtures are.
Tim: Our.
Tim: At least as but in most cases more competitive than what's currently in the marketplace.
Neil M. Ashe: Those fixtures then pair with a lot of the rest of our portfolio to serve the rest of the facility. So, imagine yourself in an EV charging lot or a gas station, and what that really is is a canopied area and a facility where retail and food are sold, which obviously we excel in, as evidenced by our corporate accounts this quarter. So, when you put those two together, that creates an attractive market for us to go into service.
Tim: Those those fixtures then pair with a lot of the rest of our portfolio to serve the rest of the facility. So imagine yourself on our EV charging lot or a gas station and.
Tim: And what that really is is a canopy to area and a facility where were retail and food assault, which obviously, we excel in evidenced our corporate accounts this quarter.
Neil M. Ashe: And I want to commend our teams for their ability to organically develop the product portfolio at a really rapid pace so that we can meet that market. So then we get to do other things we're really good at, like go and recruit the top independent sales agents in that market to represent us. And so we're optimistic about our ability to do this in this vertical and for it to be an attractive part of our portfolio going forward. Okay, okay, great.
So when you put those two together that creates an attractive market for us to go service.
And I want to commend our teams for their ability to organically develop the product portfolio.
Tim: At a really rapid pace. So that we can meet that market. So then we get to do other things we're really good at like go and recruit.
Tim: The top independent sales agent in that market too to represent us and so we're we're optimistic about our ability to do this in this vertical and it for it to be.
Tim: An attractive part of our portfolio going forward.
Speaker Change #126: Okay, Okay, Great and then maybe just.
Speaker Change #127: Maybe at a higher level question also but on SG&A.
Timothy Ronald Wojs: And then maybe just, you know, maybe a higher level question also, but on SDNA, you know, we've seen that kind of ramp now to maybe, you know, 32% or so of sales. I know this year has been kind of a little wonky in terms of the sales numbers. But I guess as you look out over the next couple years, I mean, when would you expect to start to see leverage on the heightened SDNA? So I'll start and then Karen will add actual real color to the conversation, but the big picture on SDNA, I want to highlight, it is SDNA.
Speaker Change #128: We've seen that kind of ramp now, it's maybe 32% or so of sales I know this year has been kind of a little walk in terms of the sales numbers, but I guess as you look out over the next couple of years I mean, when would you expect to start to see leverage on the heightened SG&A expense.
Speaker Change #129: So I'll start and then Karen will add actual real color to the conversation but.
Speaker Change #130: Big picture on SG&A I want to highlight.
Speaker Change #130: It is as a DNA so.
Neil M. Ashe: So there's sales and marketing, and then there's the distribution that we recognize in that number. So the distribution part of that is really part of our operation, and we are addressing that going forward to improve that, but that currently generally moves, basically in line with our volume. So if we put that aside, then from an operating expense perspective, and then sales and marketing are obviously driven largely by the commissions we pay to the independent sales network.
Speaker Change #131: So there is there are sales and marketing and then there is the distribution that is that we recognized in that number so.
Speaker Change #131: So the distribution part of that is.
Speaker Change #131: Really part of our operation and and we are addressing that going forward to improve that but that currently generally moves.
Speaker Change #131: Basically in line with our volume so.
Speaker Change #131: If we put that aside then from an operating expense and then sales and marketing obviously is driven by the largely by the commissions, we paid to the independent sales network within our operating expenses than our priority and where our investment has been has been around technology. So we have historically been underinvested in technology and.
Karen J. Holcom: Within our operating expenses, then, our priority and where our investment has been has been around technology. So we have historically been under-invested in technology and realized, as a result, not as many of the benefits as we could. So our priority there in the investment is to drive technology, which is helping to deliver some of the gross margin performance and will ultimately be more leverageable going forward. Karen?
Speaker Change #131: <unk> as a result, not as many of the benefits as we could so our priority there.
On the investment is to is to drive technology, which is helping to deliver some of the gross margin performance and will ultimately be more leverage will go on for Karen Yes.
Timothy Ronald Wojs: Yeah, Tim, the other thing I would point out is that if you look at the dollar investment quarter to quarter in fiscal 2024, we've been pretty consistent. So as we look to return the business to growth, I think that's where we'll have a real opportunity to leverage our current level of fixed and. Okay, okay, great. Thanks a lot.
Tim: Yes, Tim the other thing I would point out is that if you look.
Speaker Change #132: Look at the dollar investment quarter to quarter in fiscal 2024, we've been pretty consistent so.
As we look to return the business to growth I think thats, where it will have a real opportunity to leverage our current level of.
Speaker Change #132: Fixed investments.
Speaker Change #133: Okay, Okay, great. Thanks, a lot.
Speaker Change #134: Thank you.
Speaker Change #135: Thank you.
Joe O'Day: Thank you. Our next question comes from the line of Joe O'Day with Wells Fargo. Carolina Snow.
Speaker Change #136: Our next question comes from the line of Joe O'dea with Wells Fargo. Your line is now open.
Joe O'Day: Hi, good morning. Thanks for taking my question. Good morning, Jeff.
Joe O'dea: Hi, good morning, Thanks for taking my questions.
Joe O'Day: Morning, I wanted to start on cash now at about $700 million. And just thinking about deployment opportunities, any color on the M&A pipeline, and also the size of what's within that. And, you know, the stock's now down sort of double digits from its highs earlier this year. Does that give you an opportunity to sort of reconsider deployment and think about reengaging on repo a little? Yeah, Joe, this is Karen.
Jeff: Good morning, Jeff.
Jeff: Good morning, I wanted to start on cash now at about $700 million and just thinking about deployment opportunities any any color on the M&A pipeline.
Jeff: And also the potential size of what's within that and the stocks now down sort of double digits from highs earlier this year does that give.
Speaker Change #138: To give you an opportunity to sort of reconsider deployment and think about re engaging on repo a little more.
Joe O'Day: I'll start, and then Neil can add more color on the M&A pipeline. You know, our free cash flow, we're really pleased with where we are year-to-date. We have $404 million of free cash flow, and we continue to invest in the business. So our first priority is always to invest in our current businesses for growth.
Speaker Change #138: Yes, Joe This is Karen I'll start and then Neill can add more color on the M&A pipeline, our free cash flow. We're really pleased with where we are year to date were $404 million of free cash flow and we continue to invest in the business. So our first priority is always to invest in our current businesses.
Speaker Change #138: For growth, we do see us doing this through our product vitality efforts.
Karen J. Holcom: You see us doing this through our product vitality efforts. I'm also pleased to announce, and you may have seen this on LinkedIn yesterday, that we were at our DISTEC facility, and we are expanding those operations, both in Lyon and in Montreal, to support the growth of that business. So that is our first priority, to invest in our current businesses for growth. Neil will talk more about the M&A pipeline. We did increase our dividend, if you recall, this year. So our third priority is to increase our dividend, and for the first time in January, we increased it by 15% and maintained that level of dividend for this quarter.
Karen J. Holcom: And then finally, share repurchases, as you acknowledged. As we've said before, when our share price is high, we buy less. When our share price is low, we buy more.
Speaker Change #138: I'm also pleased to announce that you may have seen us on Linkedin yesterday.
Speaker Change #138: We read our discharge facility and we are expanding those operations both in Leone and in Montreal to support the growth of that business. So that is our first priority is to invest in our current businesses progressed, Neil will talk more about the M&A pipeline.
Speaker Change #138: Did increase our dividend if you recall this year. So our third priority is to increase our dividend and for the first time in January we increased it by 15% and maintain that level of dividend. After this.
Speaker Change #139: This quarter and then finally share repurchases as you acknowledged so we've said it before when our share price is high we buy less when our share price is low we buy more and we really have demonstrated that consistently over the past four years, allowing us to buy a significant amount of our shares.
Karen J. Holcom: And we really have demonstrated that consistently over the past four years, allowing us to buy a significant amount of our shares back over that time. So we feel really good about how we've allocated that capital to date. Yeah, and so I'll emphasize a couple of things that Karen said.
Speaker Change #139: Back over that time, so we would feel really good how we've allocated that capital to date Neil.
Neil M. Ashe: Yes, so I'll emphasize a couple of things that Karen said first is that we're investing for growth in our current businesses evidenced horticulture petroleum.
Neil M. Ashe: The first is that we're investing for growth in our current businesses, evidence, horticulture, petroleum, the expansion at DISTEC, et cetera. So we are appropriately, and we recognize that we can create a ton of value with organic growth funded by our cash flow. On the M&A side, we also recognize that we can expand the portfolio and expand the company in the process. And so we have a robust pipeline of small and medium-sized acquisitions that fit very well with our strategy going forward. And our priority there is around the space business, where, you know, you've seen us do things like E2Therm. There are more like that.
Neil M. Ashe: The expansion at this tech et cetera. So we were appropriately we recognize that.
Neil M. Ashe: We can create a ton of value is.
Neil M. Ashe: Organic growth funded by our cash flow.
Neil M. Ashe: On the M&A side, we recognize also that we can expand the portfolio and expand the company and the process and so we have a robust pipeline of small and medium sized acquisitions.
Neil M. Ashe: Sure.
Neil M. Ashe: That fit very well with our strategy going forward and our priority there is around the space business.
Neil M. Ashe: Sure.
You've seen us do things like <unk>, there are more like that there are opportunities for us to increase our addressable market.
Neil M. Ashe: There are opportunities for us to increase our addressable market in the things that we can control and the manner in which we can control them. And so we're working on that. We also have a developing strong pipeline in the lighting business as well, where we may have the opportunity to put capital to work in attractive ways. But again, we're disciplined. What we look for, one, needs to align with our strategy. And two, we need to understand how we can integrate and operate that.
Neil M. Ashe: And the things that we can control and the manner in which we can control them and and so we're working on that we also have.
Neil M. Ashe: Developing strong pipeline in the lighting business as well, where we may have the opportunity to put capital to work.
In attractive ways.
Neil M. Ashe: But again.
We're disciplined.
Neil M. Ashe: What we look for one needs to align with our strategy to we need to understand how we can integrate and operate that three we need to understand its impact on our business our company and our financial performance.
Neil M. Ashe: Three, we need to understand its impact on our business, our company, and our financial performance. And then, fourth, we have to have the opportunity to acquire it at the appropriate valuation. So these things take time. I like to say opportunity knocks.
Neil M. Ashe: And then fourth we have to we have to have the opportunity to acquire it.
Neil M. Ashe: At the appropriate valuation so.
Neil M. Ashe: It doesn't come when it's called. So we will continue to pursue those opportunities, but we feel really good about the pipeline and where we could potentially be over the next couple of years. Those are helpful details. I appreciate them.
Neil M. Ashe: So these things take time.
Neil M. Ashe: I'd like to say opportunity knocks it doesn't come when it's called so we.
Neil M. Ashe: We'll continue to prosecute those opportunities, but we feel really good about the pipeline.
Neil M. Ashe: And where we could potentially be over the next couple of years.
Joe O'Day: And then just wanted to ask on industry indicators versus demand trends you're seeing. I think, you know, headline figures seeing some softness, you know, softer than expected, ABL revenue, you know, wasn't all that surprising when we look at ABI and Dodge Momentum. But it sounds like that was maybe more sort of internally related, and the commentary on order activity is encouraging. And so just, you know, when you're looking at those indicators and you're seeing the end market, what are the disconnects between the two, such that the underlying demand that you're seeing in orders is still pretty healthy? Yeah, I would say a couple things on that, Joe.
Speaker Change #140: That's a helpful details I appreciate it.
Speaker Change #141: And then just wanted to ask on instruments industry indicators versus demand trends youre seeing I think headline figures seeing some softness in softer than expected.
Speaker Change #142: <unk> revenue was.
Speaker Change #143: Isn't all that surprising when we look at Abi and Dodge momentum.
But it sounds like that was maybe more sort of internally related and the commentary on order activity is encouraging and so just when you are looking at those indicators and youre seeing the end market what are the disconnects between between the two.
Speaker Change #143: Such that the underlying demand that youre seeing in orders is still pretty healthy.
Neil M. Ashe: So the first thing is that we're the largest in the market, so obviously, we're going to be affected by the market. Our growth algorithm is straightforward, so it's the impact of the market, one, our ability to take shares, two, and it's our ability to grow new things, three. So you're seeing some of that, or really all three of those in our order rate.
Joe: Yes, I would say a couple of things on that Joe. So first is that.
Speaker Change #143: <unk>.
Speaker Change #144: We're the largest in the market. So obviously, we're going to be affected by the market. Our growth algorithm is straightforward. So the impact of the market. One it's our ability to take share too and it's our ability to grow new things III. So so youre seeing some of that we're really all three of those in our in our order rate.
Neil M. Ashe: As we mentioned, we did build backlog during the quarter, so on a natural basis, sales could have been a little bit higher in this quarter, but those will be satisfied in the next quarter. We, as we've talked about a fair amount, we are, as you, as you know, I am data focused. And so I prefer to talk about what we know versus what we think. So, the regression work that we do on a consistent basis would demonstrate that we are outperforming what our historical performance would suggest that we would do.
Speaker Change #143: <unk>.
Speaker Change #143: As we as we mentioned we did build backlog during the quarter so on a natural basis.
Speaker Change #143: Sales could have been a little bit higher in this quarter, but those will be satisfied in the next quarter.
Speaker Change #143: We as we've talked about a fair amount we are.
Speaker Change #145: As you know I am data focused and so I prefer to talk about what we know versus what we think so.
Speaker Change #145: The regression work that we do on a consistent basis would demonstrate that we are outperforming what our historical performance would suggest that we would do.
Neil M. Ashe: So, that would, you know, that is the culmination of all of the work that we've done before. We have not been able to, to convince, convincingly predict exactly where, use an outside specific single outside variable to consistently predict what the market will be. So, ABI, for example, is just one of the metrics that we use, DODGES, but one of the metrics that we use.
Speaker Change #145: So that would.
Speaker Change #145: That is the culmination of all of that we've done before we have not been able to to convince convincingly predict exactly where it used in outside the.
Speaker Change #145: Specific single outside.
Speaker Change #145: Variable to consistently predict what.
Speaker Change #145: What the market will be so Abi for example is just one of the metrics that we use Dodge is but one of the metrics that we use when we consolidate those and we are we are we do this every month and we and we iterate and we try to make our model better and better and it is getting better and the other takeaway is that we're in.
Neil M. Ashe: When we consolidate those, and we are, we do this every month, and we iterate, and we try and make our model better and better, and it is getting better. And the other takeaway is that we're outperforming what the data would suggest that we would do, which means that we're outperforming both our past and the industry metrics. And then just one clarification related to the production that you talked about in the quarter. Can you just size what that revenue impact is and do you expect to fully capture that in the fourth quarter?
Outperforming what.
Speaker Change #145: What the what the data would suggest that that we would do which which means that we are outperforming our both our past and the industry metrics.
Speaker Change #146: And then just one clarification related to the production that you talked about in the quarter can you just size what that revenue impact is and do you expect to fully.
Speaker Change #147: Capture that in the in the fourth quarter.
Neil M. Ashe: Yeah, so, we've talked about this during kind of the, the, last couple years as things have whipsawed around. We have orders, those turn into backlog, we produce that, and then it's shipped. So we don't have a phenomenon where orders are canceled.
Speaker Change #148: Yes, so so and we've talked about this during kind of the.
Speaker Change #148: The last couple of years as things have whipsawed around.
Speaker Change #148: We we have orders those turns and those turn into backlog, we produce that and then it shifts. So we don't have a phenomenon where orders are canceled so orders orders our orders for us. So it's just a matter of Av.
Neil M. Ashe: So orders, orders are orders for us. So it's just a matter of when we ship. The second thing that I'd highlight is that we, we're focused on, as we've said, returning the lighting business to growth. That'll happen in either this quarter or the next quarter, based on, based on how we, we, we trend that out.
Speaker Change #148: When we ship the second thing that I would highlight is that we were focused on as we've said returning the lighting business to growth that will happen in either this quarter or the next quarter based on based on how we we we trend that out so so.
Speaker Change #148: We like to focus on the longer term and our ability to.
Speaker Change #148: This business, where we're confident in our ability to continue to grow the lighting business and.
Neil M. Ashe: So, you know, we like to focus on the longer term and our ability to grow this business. We're, we're confident in our ability to continue to grow the lighting business, and we're confident in our operating performance and our ability to continue that as well.
And we're confident in.
In our operating performance and our ability to continue that as well.
Speaker Change #149: Got it thank you.
Speaker Change #150: Thank you.
Jeffrey Todd Sprague: Thank you. Our next question comes from the line of Jeffrey Sprague with Vertical Research. Hey, thank you. Good morning, everyone.
Speaker Change #151: Our next question comes from the line of Jeffrey Sprague with vertical research partners.
Speaker Change #152: Hey, Thank you good morning, everyone.
Jeffrey Todd Sprague: I just want to come back to kind of the production just because. Yeah, it's actually a little surprising to hear in an environment where, you know, demand isn't particularly strong, right? It's not like you're trying to ramp up to some higher level and then, Um, to hear it's multiple things, not like one thing, perhaps like a supplier dropping the ball. So can you give us a little bit more color on what happened? And you said a little bit, about a quarter or two until you get it cleaned up.
Jeffrey Todd Sprague: Just wanted to come back to kind of the production just because.
It's actually a little surprising to hear in an environment, where demand isn't particularly strong right. It sounds like you are trying to ramp up to some higher level and then.
Jeffrey Todd Sprague: To hear it.
Jeffrey Todd Sprague: Multiple things not one thing, perhaps like a supplier dropping the ball.
Jeffrey Todd Sprague: So.
Speaker Change #153: Can you give us a little bit more color on what happened.
Jeffrey Todd Sprague: And.
Speaker Change #154: Sort of those set a little bit about Q.
Speaker Change #155: Quarter, two you get it cleaned up but just kind of sounds a bit surprising that this would've manifested across several different inputs.
Neil M. Ashe: But it just kind of sounds a bit surprising that this would have manifested itself across several different. Yeah, Jeff, first of all, I want to emphasize what I said, which is it's not alarming. And we have now developed a consistency of communication where we'll tell you exactly what we're thinking about, and we won't throw either suppliers under the bus or not answer the question. There is nothing alarming about this production.
Jeff: Yeah, Jeff first of all I want to emphasize what I said, which is it's not alarming and we have now developed a consistency of communication, where we'll tell you exactly kind of what we're thinking about and we won't throw.
Jeff: Either suppliers under the bus or.
Jeff: Or.
Jeff: Or not.
Jeff: Not answered the question there is nothing alarming about this production.
Neil M. Ashe: We had a, the core issue is mild labor. We didn't have a labor issue, which is we didn't ramp up labor as fast as we needed to because we didn't think we would need to ramp it up that fast. We can solve that problem in relatively short order and solve that going forward. So, as I said, there is nothing alarming about this and its impact going forward.
Jeff: We had a the core issue is a.
Jeff: Is mild labor we didn't.
Jeff: Labour issue, which is we didn't ramp up labor as fast as we as we needed to because.
Jeff: We didn't think we would need to ramp it up that fast we can solve that problem in relatively short order and and solve that going forward. So so this is not as I said there is nothing alarming about this.
Jeff: About this and.
Jeff: And its impact going forward, so we feel really good.
Neil M. Ashe: So we feel really good. I'll tell you, I'll preview what our internal communication is, which we're sending out in about 30 minutes, which is that as we've improved our company, our expectations for our own performance are higher. So we are holding ourselves to a higher standard.
Jeff: I will tell you I'll preview, what our internal communication is which we which we are sending out in about 30 minutes, which is that as we've improved our company.
Jeff: Our expectations for our own performance are higher.
Jeff: So we are holding ourselves to a higher standard and so so I don't think many companies would have called out that we missed our production targets this quarter, but but our expectations for our own performance are higher and so and our team's expectations for our performance are higher so.
Neil M. Ashe: And so, I don't think many companies would have called out that we missed our production targets this quarter. But, our expectations for our own performance are higher, and so, and our team's expectations for our performance are higher. So, so again, nothing alarming here.
Jeff: So again nothing alarming here, we will sort this out and go forward.
Neil M. Ashe: We will sort this out and go forward. And then on the other side of the equation, Neil, the gross margins continue to look impressive, which, you know, I hear is a production problem. I think down gross margins, not up gross margins, right? At one point in the discussion today, you said design select was not the primary driver. Can you just maybe elaborate on what you pointed to product vitality, service levels, and productivity? I mean, is that the order of magnitude?
And then on the other side of the equation Neal the gross margins continue to look impressive which.
Jeff: Here production problem, I think down gross margin startup gross margins right at.
Speaker Change #156: At one point in the discussion today, you said design select us not the primary driver.
Speaker Change #157: Can you just maybe elaborate what.
Speaker Change #158: You pointed to product vitality service levels and productivity I mean is that is that the order of magnitude.
Jeffrey Todd Sprague: Is there anything in particular that stands out on the gross margin? I know, you know, the direct price discussion is a bit anathema, but maybe just talk about what's going on on the price-cost side. Yeah, so let's spend a few minutes on this, Jeff. Thanks for the question.
Speaker Change #159: Is there anything in particular that stands out on the gross margins I know.
Speaker Change #160: The direct price discussion is a bit anathema, but maybe just talk about what's going on.
Speaker Change #160: On the price cost side in aggregate.
Speaker Change #161: Yes so.
Jeffrey Sprague: Yeah, so let's do spend a few minutes on this, Jeff. Thanks for the question. So let me first start with product vitality, and I'll use the frame which we focused on as an example. That is, and we've talked about several big fixture projects over the course of the last couple of years that have done something similar, which is, we're delivering a higher value product to marketplace with significantly less content.
Jeff: Let's let's do you spend a few minutes on this Jeff Thanks for the question so.
Neil M. Ashe: So let me first start with product vitality, and I'll use the frame that we focused on as an example. That is, and we've talked about several big picture projects over the course of the last couple of years that have done something similar, which is we are delivering a higher-value product to the marketplace with significantly less content. So, you know, as you saw in the images, this is literally a snap-together fixture that replaces a panel in the ceiling of an office or a K through 12 school, for example.
Speaker Change #162: So let me first start with product vitality and I'll use the frame, which we focused on as an example.
Speaker Change #162: That is.
Speaker Change #162: And we've talked about several big fixture projects over the course of the last couple of years that have done something similar which is.
Speaker Change #162: We are delivering a higher value product to the marketplace with significantly less content. So as.
Jeffrey Sprague: So, you know, as you saw in the images, this is literally a snap-together fixture that replaces a panel in the ceiling of an office or a K-12 school, for example. So there's significantly less content in that fixture, so obviously our ability to drive margin with less material is much higher.
Speaker Change #162: As you saw in the images.
Speaker Change #162: This is literally a snap together fixture that replaces a panel in.
Speaker Change #162: In the ceiling of an office or or a K 12 School for example.
Neil M. Ashe: So there's significantly less content in that fixture, and obviously, our ability to drive margin with less material is much higher. Second, I would say, on the pricing front, we have been, as we've said, become very strategic about how we price. So, and our strategy is very clear. On the contractor select portfolio, which is 300 high-volume products that are designed to be stocked and resold, we are very competitive from a price perspective, although not the lowest price, and we are the most competitive from a value perspective.
Speaker Change #162: So there is significantly less content in that fixture. So obviously, our ability to drive margin with less material is much higher.
Jeffrey Sprague: Second, I would say, on the pricing front, we have been, as we've said, we have become very strategic about how we price. So, at our strategy is very clear on the contractor select portfolio, which are 300 high volume products, which are designed to be stocked and resold. We are very competitive from a price perspective, although not the lowest price, and we are the most competitive from a value perspective. In other words, what you get for your money. So, with switchable technology and other things, we've created an opportunity for the end user to be able to trust those products in each of their projects.
Speaker Change #162: Second I would say on the pricing front, we have been.
Speaker Change #162: As we've said we've become very strategic about it.
Speaker Change #162: How we price so.
Speaker Change #162: And our strategy is very clear on the contractor select portfolio, which is 300 high volume products, which are designed to be stocked and resold.
Speaker Change #162: We are.
Speaker Change #162: We are very competitive from a from a price perspective, although not not the lowest price.
Speaker Change #162: And we are the most competitive from a value perspective in other words, what you get for your money, so with switchable technology and.
Neil M. Ashe: In other words, what you get for your money. So, with switchable technology and other things, we've created an opportunity for the end user to be able to trust those products in each of their projects, and we've created the opportunity for distributors to earn higher returns, because when they focus on our products, they know that they don't have to carry as much inventory. And they also don't have to carry as much exogenous inventory.
Speaker Change #162: Other things we've created an opportunity for the end user to be able to trust those products in each of their projects and we've created the opportunity for distributors to earn higher returns because when they focus on our products. They know that they don't have to carry as much inventory. They also don't have to carry as much.
Jeffrey Sprague: And we've created the opportunity for distributors to earn higher returns, because when they focus on our products, they know that they don't have to carry as much inventory. They also don't have to carry as much exogenous inventory; in other words, inventory of other folks.
<unk> inventory in other words inventory of other of other folks the third thing I would highlight.
Jeffrey Sprague: The third thing I'd highlight, which I addressed a little bit earlier in one of the questions, was the now fully integrated performance of our other LED and optatronics drivers. So by controlling the electronics in our, in our luminaries and our controls, we have, we have largely completed that vertical integration, which gives us a number of advantages, among them as margin.
Neil M. Ashe: In other words, the inventory of other folks. The third thing I'd highlight, which I addressed a little bit earlier in one of the questions, was the now fully integrated performance of our LDLED and optotronics drivers. So by controlling the electronics in our luminaires and our controls, we have largely completed that vertical integration, which gives us a number of advantages, among them is margin. And then, finally, we continue to have the opportunity to increase service levels and drive productivity. So, as I mentioned earlier in the call, we're on a path here. We're not at a destination.
Speaker Change #163: You addressed a little bit earlier in one of the questions was.
Speaker Change #163: The now fully integrated performance of our <unk> drivers so by controlling the electronics.
Speaker Change #163: In our in our luminaries in our controls we have we have largely completed that vertical integration, which gives us a number of advantages among them is margin.
So and then finally, we continue to have opportunity to to increase service levels and drive productivity. So as I mentioned earlier in the call where we're on a we're on a path here, we're not at a destination and so.
Jeffrey Sprague: So, and then finally, we continue to have the opportunity to increase service levels and drive productivity. So, as I mentioned earlier in the call, we're, we're on a, we're on a path here, we're not at a destination. And so, each one of those is working together, and the cumulative effect of that is what we think is really good performance.
Speaker Change #163: And each one of those is working together and the cumulative effect of that is is what we think is really good performance.
Jeffrey Sprague: Right, thanks for that. I'll leave it there. Thanks, Jeff.
Speaker Change #164: Great. Thanks for that I'll leave it there.
Jeff: Thanks, Jeff.
Jeff: Thank you.
Operator: So I'm showing no further questions in queue at this time.
Speaker Change #165: I'm showing no further questions in queue at this time I would like to turn the call back to Neil Ash for any closing remarks.
Neil Ashe: I'd like to turn the call back to Neil Ashford, closing remarks. Thank you; we appreciate you all joining us today. So, so as we've talked about consistently, we are focused on returning our lighting control business to growth, while we continue to drive margins and strong cash flow. We feel like our space as business is, performance is impressive and growing, and we have opportunities to continue to grow our portfolio over time. So, with that, we will get back to work and deliver on the fourth quarter, and we'll talk to you soon. Hope you all have a good day.
Neil M. Ashe: And each one of those is working together, and the cumulative effect of that is what we think is really good performance. Great. Thanks for that. I'll leave it there. Thanks, Jeff. Thanks. I'm showing no further questions in queue at this time. I'd like to turn the call back to Neil Ashe for any closing comments. Thank you. We appreciate you all joining us today. So, as we've talked about consistently, we are focused on returning our lighting and lighting control business to growth while we continue to drive margins and strong cash flow.
Neil M. Ashe: Thank you. We appreciate you all joining us today. So so as we've talked about consistently we are focused on returning our lighting lighting control business to growth, while we continue to drive margins and strong cash flow, we feel like our space business is performance is impressive in <unk>.
Neil M. Ashe: We feel like our Spaces business' performance is impressive and growing, and we have opportunities to continue to grow our portfolio over time. With that, we will get back to work and deliver on the fourth quarter, and we'll talk to you soon. Hope you all have a good day. This concludes today's conference. Thank you for participating. You may now go.
Neil M. Ashe: Growing and we have opportunities to continue to grow our portfolio over time, so with that we will get back to work and deliver on the fourth quarter and we will talk to you. Soon hope you all have a good day.
Operator: Disconcludes today's conference call. Thank you for participating. You may now...
Speaker Change #166: This concludes today's conference call. Thank you for participating you may now disconnect.