Q1 2025 Acuity Brands Inc Earnings Call

January 8, 2025

Capital Speaker's presentation. The company will conduct a question and answer session. Please.

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. Charles Please go ahead.

Speaker Change: Thank you operator.

Speaker Change: Good morning, and welcome to the acuity brands fiscal 2025 first quarter earnings call.

On the call with me this morning, and they latch, our chairman President and Chief Executive Officer, and Karen How Kim our senior Vice President and Chief Financial Officer.

Speaker Change: Today's call will include updates on our strategic progress and our fiscal 2025 first 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.

Speaker Change: 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.

Speaker Change: Reconciliations of certain non-GAAP financial metrics with our corresponding GAAP measures are available in our 2025 first quarter earnings release and supplemental presentation.

Speaker Change: Both of which are available on our Investor Relations website at Www Dot <unk>.

Speaker Change: <unk> dot 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 Ash: Thank you Charlotte and thank you all for joining us this morning.

Neil Ash: Our fiscal 2025 first quarter performance was solid.

Neil Ash: We delivered sales growth expanded our adjusted operating profit and adjusted operating profit margin and increased our adjusted diluted earnings per share.

Neil Ash: We're also pleased to welcome <unk> to acuity, having successfully closed the acquisition last week.

Neil Ash: Now <unk>.

Neil Ash: Turning to acuity brands lighting, we continue.

To perform well delivering sales growth in the first quarter. Our performance is more predictable repeatable and scalable as a result of the continued actioning of our strategy 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.

Neil Ash: Our strategy has informed the development of our differentiated product portfolios contractor select design select and made to order, enabling us to drive growth and productivity for ourselves and for our partners.

Neil Ash: With contractor select we are driving growth and productivity for our electrical distributors by lowering their cost of doing business and empowering them to carry less inventory.

Neil Ash: Designed select we're focused on delivering productivity to architects lighting specifier design build contractors and electrical contractors by enabling them to choose the right configurable products for their projects.

Neil Ash: Our portfolios are constructed with high levels of product vitality and.

Neil Ash: In contractor select this quarter, we launched two new products to Rep and the rebel round High Bay.

Neil Ash: Both products features switchable technology and offer multiple functionality with the end result, being that distributors can carry fewer skus, while providing more options for customers.

<unk> from Lithonia lighting enhances the traditional route offering even lighting for spaces with limited natural lighting options like locker rooms storage utility areas garages and offices.

Neil Ash: Tier three adjustable lumen settings, and three switchable colored temperature settings.

Neil Ash: The rebel round high Bay delivers uniform illumination for large open spaces like industrial facilities and indoor sports arenas.

In addition to offering an expanded lumen range with switchable color temperature options. It is manufactured to withstand harsh conditions and can be easily integrated with our sensor switch controls for improved energy savings.

Neil Ash: These innovations are important to our customers and our team has once again been recognized for the value they deliver.

Neil Ash: In the first quarter many of our lighting solutions were selected for the Grand Prix. The design awards in international competition that celebrates excellence and talent of creative professionals and firms.

Neil Ash: Our winners included mochi by cyclone Hydro flame and several Eureka products, including the <unk> family and the Frank Joe Lee L key and Merrell luminaire.

Neil Ash: Our luminous serious pro was recognized by the architects newspapers best of product Awards, which elevates well designed products, serving the architecture and design community.

Neil Ash: A serious pro family includes interior and exterior luminaire as for a seamless aesthetic transition.

Neil Ash: The luminaries are compatible with our inlay controls, allowing seamless control of indoor and outdoor spaces, while reducing energy costs aiding in building compliance and improving occupant comfort.

Speaker Change: Now moving on to intelligence basis, which delivered another strong quarter of sales growth and margin performance.

Speaker Change: Our mission in intelligence basis is to make space, a smarter safer and greener through a strategy of connecting the edge with the cloud using disruptive technologies that leverage data interoperability.

Speaker Change: In <unk>, we are focused on where we compete and what we can control to expand our addressable market.

Speaker Change: As part of our geographic expansion. This quarter, we continue to add systems integrator capacity in the U K Asia and Australia.

Speaker Change: This tech partners with the best size and specific geographies to sell our full suite of controls sensors and applications.

Speaker Change: In October we brought together, our North American Si partners in Nashville for our connect conference. This is a highly engaged community of the best systems integrators in the world that come together to learn more about <unk> and <unk> products.

Speaker Change: During the conference, we launched new products and applications and delivered updates on the latest technology trends, while also offering technical training.

This year was the highest attendance since the event began and highlighted the continued strength and importance of our relationships across the building management systems industry.

Speaker Change: We are thinking about spaces differently, we're using data to maximize occupant experience and transform spaces.

Speaker Change: Last week, we closed our acquisition of <unk>.

Speaker Change: Through <unk> Atreus and QC, we can now control both how our spaces managed and what happens in that space with our disruptive technologies that promote end user satisfaction through data interoperability.

Speaker Change: Imagine a future where you walk into a room and the space intelligently adjusts where data is used to predict how many people will be using that room cooling or heating the room in advance for optimum occupant comfort aligned.

Speaker Change: Aligning the in person and virtual experience by seamlessly transitioning between microphones and cameras based on who is speaking and where they are located.

Speaker Change: Using data points to optimize lighting levels lowering shades. If there is an increased glare.

And if a meeting is cancelled reverting or room back to it's unoccupied settings to save energy and lower costs.

Speaker Change: We're excited about the addition of <unk> two intelligent spaces as we continued to execute on our mission.

Now looking forward, we are an industrial technology company with the best lighting company in North America, and a larger scale intelligence basis business, our path to growth and profitability is clear in both segments.

Speaker Change: And of acuity brands lighting, our growth algorithm is grow with the market.

Speaker Change: <unk> share and enter verticals, where we have either not historically competed or where we are underpenetrated.

Speaker Change: We will continue on our path to improve margins.

Speaker Change: And intelligent spaces through <unk>, <unk> and <unk>, we can now control both hollow spaces managed and what happens in that space with our disruptive technologies that promote end user satisfaction through data interoperability.

Speaker Change: Our focus will be on growth and we have the opportunity to expand margins.

Speaker Change: We are creating value by growing net sales turning profits into cash and not growing the balance sheet as fast and we are demonstrating that we are effective capital allocators.

Speaker Change: Now I'll turn the call over to Karen who will update you on our first quarter performance and provide more details of the expected financial impact of the <unk> acquisition.

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

Karen: We delivered solid performance in our first quarter of fiscal 2025.

Karen: We grew sales improved our adjusted operating profit and margin and increased our adjusted diluted earnings per share.

For total <unk>, we generated net sales in the first quarter of $952 million, which was $17 million or 2% above the prior year as both lighting and intelligent spaces grid.

During the quarter, our adjusted operating profit was $159 million, which is up $5 million or 3% from last year and we expanded our adjusted operating profit margin to 16, 7% an increase of 20 basis points from the prior year.

Karen: This increase was largely a result of the significant year over year improvement in our gross profit margin driven by product vitality and management of price and cost and productivity improvements.

Karen: We generated net interest income as a result of the cash position on our balance sheet.

Karen: This quarter, our effective tax rate of 28% was lower than last year and lower than the expected full year rate of around 23, 5% due to discrete items in the quarter.

For total <unk>, we generated net sales in the first quarter of $952 million, which was $17 million or 2% above the prior year as both lighting and intelligent spaces grid.

Karen: Finally, our adjusted diluted earnings per share of $3 97.

During the quarter, our adjusted operating profit was $159 million.

Karen: Increased 25 or 7% over the prior year.

Which is up $5 million or 3% from last year, and we expanded our adjusted operating profit margin to 16, 7% an increase of 20 basis points from the prior year.

Karen: And of acuity brands lighting, net sales were $886 million, which was $10 million or 1% above the prior year, primarily the result of sales growth and our independent sales network and in our direct sales channel.

This increase was largely a result of the significant year over year improvement in our gross profit margin driven by product vitality and management of price and cost and productivity improvements.

Karen: Adjusted operating profit was $154 million and we delivered adjusted operating profit margin of 17, 3%, which was down slightly compared to the prior year.

We generated net interest income as a result of the cash position on our balance sheet.

Sales of intelligent spaces for the first quarter were $74 million, an increase of 15% year over year as <unk> continued to deliver impressive growth.

This quarter, our effective tax rate of 28% was lower than last year and lower than the expected full year rate of around 23, 5% due to discrete items in the quarter.

Karen: Adjusted operating profit and intelligent spaces was $15 million with an adjusted operating profit margin of 21% an improvement of five percentage points year over year.

Finally, our adjusted diluted earnings per share of $3 97.

Increased 25 or 7% over the prior year.

Karen: Now turning to our cash flow performance.

And of acuity brands lighting.

Karen: In the first quarter of 2025, we generated $132 million of cash flow from operations.

Sales were $886 million, which was $10 million or 1% above the prior year, primarily the result of sales growth and our independent sales network and in our direct sales channel.

Karen: We earn attractive returns on the cash that we have on our balance sheet and we ended the quarter with $936 million of cash.

Adjusted operating profit was $154 million and we delivered adjusted operating profit margin of 17, 3%, which was down slightly compared to the prior year.

Karen: We closed the acquisition of <unk> last week.

Karen: We financed this acquisition with $600 million of additional debt and the remainder with cash on hand.

Karen: During the quarter, we resumed our share repurchase program and allocated approximately $5 million to repurchase approximately 17000 shares.

Sales in intelligent spaces for the first quarter were $74 million, an increase of 15% year over year as <unk> continued to deliver impressive growth.

Karen: I now want to spend a few minutes updating our outlook for 2025 for the inclusion of <unk>.

Adjusted operating profit and intelligent spaces was $15 million with an adjusted operating profit margin of 21% an improvement of five percentage points year over year.

<unk> will be reported in our results beginning in January.

Karen: Our updated expectations for full year fiscal 2025 is that net sales will be within the range of $4 3 billion and $4 5 billion for total NOI.

Now turning to our cash flow performance in.

In the first quarter of 2025, we generated $132 million of cash flow from operations.

Karen: And we expect adjusted diluted earnings per share within the range of $16 50.

We earned attractive returns on the cash that we have on our balance sheet and we ended the quarter with $936 million of cash.

Karen: To $18.

Karen: Additionally, we now expect to have full year interest expense of between $20 million and $25 million for the full year fiscal 2025.

We closed the acquisition of <unk> last week.

We financed this acquisition with $600 million of additional debt and the remainder with cash on hand.

Karen: We will incur integration expenses as well as the impact of purchase accounting adjustments throughout the year.

During the quarter, we resumed our share repurchase program and allocated approximately $5 million to repurchase approximately 17000 shares.

Karen: We're pleased with our performance in the first quarter of fiscal 2025 or.

Karen: Our lighting business continued to perform well and our intelligent spaces business delivered impressive results.

I now want to spend a few minutes updating our outlook for 2025 for the inclusion of <unk>.

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

<unk> will be reported in our results beginning in January.

Our updated expectations for full year fiscal 2025 is that net sales will be within the range of $4 3 billion and $4 5 billion for total a yi.

Speaker Change: Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced.

Speaker Change: So we're trying a question simply press star one again, please stand by while we compile the Q&A roster.

And we expect adjusted diluted earnings per share within the range of $16 50.

To $18.

Additionally, we now expect to have full year interest expense of between $20 million and $25 million for the full year fiscal 2025.

Speaker Change: My first question coming from the line of Ryan Merkel at William Blair. Your line is now open.

Ryan Merkel: Hey, good morning, everyone. Thanks for taking the question.

We will incur integration expenses as well as the impact of purchase accounting adjustments throughout the year.

Ryan Merkel: First off just wanted to ask on <unk> accretion and thanks for updating the guide, but could you give us the full 12 months of accretion that you're expecting from <unk>.

We're pleased with our performance in the first quarter of fiscal 2025 or.

Our lighting business continued to perform well and our intelligent spaces business delivered impressive results.

Ryan Merkel: Hey, good morning, Ryan.

Ryan Merkel: Thanks, everyone for being with US this morning so.

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

Ryan Merkel: Actually it's not really relevant the full year, so but if.

Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced.

Ryan Merkel: If you were to roll this forward on a calendar basis I think you would directionally have the.

Ryan Merkel: The ability to do that just we have what eight months of this year. So so a 12 looking forward but.

So we're trying a question simply press star one again, please stand by while we compile the Q&A roster.

Ryan Merkel: More importantly, we're really pleased with with the acquisition. This is I believe for our intelligence basis group. We have a we have a different theory of the case, we have the opportunity to control both what the building itself and what happens in this space.

Speaker Change: My first question coming from the line of Ryan Merkel at William Blair. Your line is now open.

Ryan Merkel: Hey, good morning, everyone. Thanks for taking the question.

Ryan Merkel: And that is a unique combination of of data collection and the ability to control that data and do things with it so.

Ryan Merkel: First off just wanted to ask on <unk> accretion and thanks for updating the guide, but could you give us the full 12 months of accretion that you're expecting from QC.

Ryan Merkel: We're really pleased with that we're off to we're off to a really good start with with the team at USC and were excited that theyre part of acuity.

Hey, good morning, Ryan.

Speaker Change: Okay helpful. And then Neill can you just comment on order trends and if visibility has improved on the backlog and the pipeline what those projects potentially getting released.

Ryan Merkel: Thanks, everyone for being with US this morning so.

Actually it's not really relevant the full year, so but if.

Ryan Merkel: If you were to roll this forward on a calendar basis I think you would directionally have the.

Neil Ash: Yes, so so Ryan I think youre, referring more to the lighting business there so.

Ryan Merkel: The ability to do that just we have what eight months of this year. So so a 12 looking forward but.

Speaker Change: So.

Speaker Change: On the lighting side, where as we said in the prepared remarks, we're pleased with the performance the.

Speaker Change: Our team there is executing consistently and where we are clear on the growth algorithm as we as we look forward.

Speaker Change: Obviously, we believe that calendar 'twenty five.

Ryan Merkel: And that is a unique combination of of data collection and the ability to control that data and do things with it. So so we're really pleased with that we're off to we are off to a really good start with with the team at USC and were excited that theyre part of acuity.

Speaker Change: Boeing too from a market perspective would be better than calendar 'twenty four.

Speaker Change: We base that assumption on our view of data.

Speaker Change: External data going forward number one and second then our interaction with.

Speaker Change: Okay helpful. And then Neill can you just comment on order trends and if visibility has improved on the backlog and the pipeline with those projects potentially getting released.

Speaker Change: With the field number too.

Speaker Change: The kind of the word from the field is that is that our growth algorithm is working we are we are the leading player obviously in the industry and leading not just but by size, but by performance and and by performance I mean quality of performance. So.

Neill: Yes, so so Ryan I think youre, referring more to the lighting business there.

Speaker Change: So.

Speaker Change: On the lighting side, where as we said in the prepared remarks, we're pleased with the performance the.

Speaker Change: That that is strong if you dig into our Q1 numbers youll see that.

Speaker Change: Our C&I channel performed performed pretty well, our retail channel did not perform great, but but that's really just a point in time, so when you roll that forward.

Speaker Change: Our team there is executing consistently and where we're clear on the growth algorithm as we as we look forward.

Speaker Change: Obviously, we believe that calendar 'twenty five.

Speaker Change: It gives us confidence for for the rest of this year and beyond.

Speaker Change: Going to from a market perspective would be better than calendar 'twenty four.

Speaker Change: And if I could just follow up on that last point I noticed that the corporate accounts and retail were down but the most important segment that independent channel was up so is the read here that you are starting to see sort of demand recovery and an inflection or is it a bit too early.

Speaker Change: We base that assumption on our view of data.

Speaker Change: External data going forward number one.

Speaker Change: Then our interaction with with the field number too.

Speaker Change: Let's call that when it happens so.

Speaker Change: So I'd say kind of on the on the C&I indirect channel. This is this is really a demonstration of I believe our product segmentation strategy coming to life and really working effectively.

Speaker Change: The as you know on our corporate accounts that that's a.

Speaker Change: That that is strong if you dig into our Q1 numbers youll see that.

Speaker Change: Our C&I channel performed performed pretty well, our retail channel did not perform great, but but that's really just a point in time, so when you roll that forward.

Speaker Change: It's an inconsistent business, but a high quality business. So we will have some big quarters, and some smaller quarters based on individual customer decisions.

Speaker Change: And then on the retail side, we have great relationships there so.

Speaker Change: It gives us confidence for for the rest of this year and beyond.

They haven't had great results over the course of the last year or so so this is a little bit of a catch up but that's just the point in time. So I think it's early to call the call the inflection, but obviously, we're confident in where we're going in calendar 'twenty five.

Speaker Change: And if I could just follow up on that last point I noticed that the corporate accounts and retail were down but the most important segment that independent channel was up so is the read here that youre starting to see sort of demand recovery demand inflection or is it a bit too early.

Speaker Change: Alright, thanks, so much best of luck.

Speaker Change: Thanks.

Speaker Change: Thank you.

Speaker Change: Let's call that when it happens so.

Speaker Change: And our next question coming from the line of Tim.

Speaker Change: Tim <unk> with R. W. Baird. Your line is now open.

Tim: Hey, everybody good morning.

Good morning, I guess just to start.

Just a first question just on the guide I just want to confirm is is the guide raise solely for <unk> and the core is unchanged or did you guys make any changes to kind of the core guidance.

Speaker Change: As you know on our corporate accounts.

Speaker Change: That's a.

Speaker Change: It's an inconsistent business, but a high quality business. So we will have some big quarters, and some smaller quarters based on individual customer decisions.

Speaker Change: Hey, good morning, Ken Yes, the <unk>.

Speaker Change: Guidance is that just the adjustment for <unk>, we expect the base business to perform as we laid out in the fourth quarter and the increase in the sales that you see an increase in EPS is really due to the impact of USA and then also the additional interest expense.

Speaker Change: And then on the retail side, we have great relationships there so.

Speaker Change: They haven't had great results over the course of the last year or so so this is a little bit of a catch up but that's just the point in time so.

Speaker Change: I think it's early to call the call the inflection, but obviously, we're confident in where we're going in calendar 'twenty five.

Okay, Okay, great and then.

Speaker Change: Then just maybe on <unk> just what's been the initial feedback from your system integrator customers and could you give us maybe.

Speaker Change: Alright, thanks, so much best of luck.

Thanks.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of Tim.

Speaker Change: Historical example, or two of just just housing businesses kind of piece together and why it makes sense to have them under one roof.

Speaker Change: Tim <unk> with R. W. Baird. Your line is now open.

Tim: Hey, everybody good morning.

Speaker Change: Good morning, I guess just to start just.

Speaker Change: Yes, sure well, so let's take a step back Tim as I said earlier, we do have a different theory of the case I believe in the rest of the industry and that's that data is the fundamental driver of value in this generation and that there is an opportunity to bring together the data that exists in <unk>.

Speaker Change: Just a first question just on the guide I just wanted to confirm is is the guide raised solely for <unk> and the core is unchanged or did you guys make any changes to kind of the core guidance.

Tim: Hey, good morning, Tim Yes.

Guidance is that just the adjustment for <unk>. So we expect the base business to perform as we laid out in the fourth quarter and so the increase in the sales that you see an increase in EPS is really due to the impact of USD and then also the additional interest expense.

Speaker Change: And a build space what happens in a build space and who is going to build space. So the ability to build a data and controls business. Then is the differentiated opportunity that we believe we've identified.

Speaker Change: So these have not historically overlapped so having said that the initial response from the systems integrator community at <unk> and the systems integrator community at.

Tim: Okay, Okay great.

Tim: Then just maybe on <unk>.

It's been the initial feedback from your system integrator customers and could you give us maybe.

Speaker Change: <unk> was hey can we sell the other one now and which is exactly what we expected we're not doing that yet however, so our strategy for four.

Tim: Historical example, or two of just just how do you kind of businesses kind of piece together and why it makes sense to have some under one roof.

Speaker Change: Yes, sure well, so let's take a step back Tim as I said earlier, we do have a different theory of the case I believe in the rest of the industry and Thats that data is the fundamental driver of value in this generation and that there is an opportunity to bring together the data that exists in.

Speaker Change: For bringing this online is that we believe that number one this is a super high quality asset and there and we want and expect them to continue to perform as they have been performing so that's kind of step one step two is we have the opportunity to create end user opportunities through the combination.

Speaker Change: And a build space what happens in a build space and who is going to build space. So the ability to build a data and controls business. Then is a differentiated opportunity that we believe we've identified.

Speaker Change: Data and data interoperability and that'll happen over the next 12 to 24 months.

Speaker Change: And then finally, we're confident that they will benefit from being part of our organization and how we do things to drive their value. So a specific.

Speaker Change: So so these have not historically overlapped so having said that the initial response from the systems integrator community at <unk> and the systems integrator community at <unk>.

Speaker Change: Example of already how these come together, though is that we.

Speaker Change: <unk> was hey can we sell the other one now.

Speaker Change: We initially met the companies.

Speaker Change: And which is exactly what we expected we're not doing that yet however, so our strategy for four.

Speaker Change: Through the interaction and in engineering and product level between <unk> and at USC.

Speaker Change: So.

Speaker Change: Both of those now before the acquisition created data interoperability so that the CUSIP control system could control what was happening in the building through their interface and this tech to control the AAV through through our interface. So it's very natural comb.

Speaker Change: Nation, but it's one that hasn't existed between anyone else before.

Speaker Change: Data and data interoperability and that will happen over the next 12 months to 24 months.

Speaker Change: Okay. Okay. That's helpful. And then just to sneak one last one and just how are how is the acuity and maybe just kind of the channel in general just kind of kind of preparing for potential tariffs.

Speaker Change: And then finally, we're confident that they will benefit from being part of our organization and how we do things to drive their value. So a specific.

Speaker Change: Example of already how these come together, though is that.

Speaker Change: Has there been any sort of kind of pull forward in shipments or I guess, how would you kind of think about the tariff implications for acuity and how people are managing in the channel.

Speaker Change: We initially met the company's.

Speaker Change: Through the interaction at an engineering and product level between <unk> and at USC.

Speaker Change: I guess I'd summarize it Tim by saying, there's been there's been a lot of talk and not a whole lot of action.

Speaker Change: No.

Speaker Change: <unk>.

Speaker Change: Are those now.

Speaker Change: For the acquisition created data interoperability, so that the CUSIP control system could control what was happening in the building through their interface and dissected control the AAV through through our interface. So it's very natural combination, but it's one that hasnt existed between anyone else.

Speaker Change: So we have not.

For ourselves for example, we've made very small kind of targeted changes and.

Speaker Change: Our purchasing.

Speaker Change: Which are kind of no regrets decisions about.

Speaker Change: What might.

Speaker Change: Potentially happen in the future from a customer perspective, we've had a lot of customers asking us.

Before.

Okay. Okay. That's helpful. And then just to sneak one last one and just how are how is the acuity and maybe just kind of the channel in general just kind of kind of preparing for potential tariffs.

Speaker Change: If we are going to increase prices and wind because of tariff.

And then that that conversation sort of died down I'd say the.

Speaker Change: The expectation from from our customers is that we will react accordingly, when that happens and we set the expectation with them that nothing has happened. So there's nothing to talk about and if something does happen, we will be prepared and we will act accordingly.

Speaker Change: I guess I'd summarize it by saying there has been there's been a lot of talk and not a whole lot of action.

Speaker Change: Fair enough.

Speaker Change: Good job and good luck on a risk for you guys.

Speaker Change: So.

So we have not.

Speaker Change: Thanks, Tim.

Speaker Change: <unk>.

Speaker Change: Thank you.

Speaker Change: For ourselves for example, we've made very small kind of targeted changes in.

Speaker Change: Our next question coming from the line of Joe.

Joe Odea with Wells Fargo. Your line is now open.

Speaker Change: Our purchasing.

Speaker Change: Which are kind of no regrets decisions about.

Speaker Change: Hi, good morning, Thanks for taking my questions.

Speaker Change: What might.

Speaker Change: Hey, Joe.

Speaker Change: Essentially happened in the future from a customer perspective, we've had a lot of customers asking us.

Hey can you.

Speaker Change: Just talk about the <unk>.

Speaker Change: <unk> margin opportunity over time.

Speaker Change: If we're going to increase prices and when because of tariff.

Speaker Change: It looks like what's embedded in the guide for 'twenty, five now, including QC would put there.

Speaker Change: And then that that conversation sort of died down I'd say the the.

Speaker Change: Revenue, maybe up low double digits year over year, so, it's a pretty attractive growth rate and not too dissimilar from from ISG.

Speaker Change: Your expectation from from our customers is that we will react accordingly, when that happens and we set the expectation with them that nothing has happened. So there's nothing to talk about and if something does happen, we will be prepared and we will act accordingly.

Speaker Change: It looks like on the margin profile, we may be looking at <unk> margins kind of mid teens versus the 20% ish for ISG. So when you think about that margin gap.

Speaker Change: Any structural differences there and how do you think about the timeline to narrowing that.

Speaker Change: Fair enough good good job and good luck on a risk for you guys.

Thanks, Tim.

Speaker Change: Yes, so I'll take you back to what we said when we when we announced the acquisition, Joe which is that.

Thank you.

Speaker Change: Our next question coming from the line of <unk>.

Speaker Change: This is an attractive opportunity.

Joe O'dea of Wells Fargo. Your line is now open.

Speaker Change: First of all to bring together talked about that already second the underlying business is a strong business, which we have which we think has similar.

Joe O'dea: Hi, good morning, Thanks for taking my questions.

Speaker Change: Hey, Joe.

Joe O'dea: Hey can you just talk about the QC margin opportunity over time books.

Speaker Change: Financial profile to our existing.

Speaker Change: Assets in our intelligence basis business. So so I think youre right.

Joe O'dea: It looks like what's embedded in the guide for 'twenty, five now, including QC would put their.

Speaker Change: It's kind of mid teens, we're counting on mid teens low to mid teens growth rate for them, which is consistent with where we currently are.

Joe O'dea: Revenue, maybe up low double digits year over year, so pretty attractive growth rate is not too dissimilar from from ISG.

Speaker Change: Our priority is growth. So so we did not make this acquisition with the expense with the expectation that we would be taking cost out we don't need to.

Joe O'dea: It looks like on the margin profile, we may be looking at QVC op margins kind of mid teens versus the 20% ish for ISG. So when you think about that margin gap.

Speaker Change: Excuse me there is a natural opportunity to increase the margins over time as we grow similarly to what we've done with with this second the ISG business. So you can see that over the course of the last three years.

Any structural differences there and how do you think about the timeline to narrowing that.

Joe O'dea: Yes, so I'll take you back to what we said when we when we announced the acquisition, Joe which is that.

Speaker Change: Where we've gone with with that business.

Speaker Change: So to answer kind of your last point there is no structural difference that would that would impede our ability to do that over time, but I want to emphasize that.

Joe O'dea: This is an attractive opportunity.

Joe O'dea: First of all to bring together talked about that already second the underlying business is a strong business, which we have which we think has similar.

Speaker Change: That our priority is is number one to continue the growth and performance of the existing business and then number two to start to deliver things to the market that other people can't.

Financial profile to our existing.

Joe O'dea: Assets in our intelligence basis business. So so I think youre right.

It's kind of mid teens, we're counting on mid teens low to mid teens growth rate for them, which is consistent with where we currently are.

Speaker Change: And then just on the go to market and you talked about.

Sort of encouraging feedback from systems integrators, but how much overlap is there in that system and in greater go to market today in terms of.

Joe O'dea: Our priority is growth. So we did not make this acquisition with the expense with the expectation that we would be taking cost out we don't need to.

Joe O'dea: Excuse me there is a natural opportunity to to increase the margins over time as we grow similarly to what we've done with with this second the ISG business. So you can see that over the course of the last three years.

Speaker Change: The percentage of sort of Qs C&I ESG revenue that would be going through the same systems integrators through separate and kind of that opportunity set.

Speaker Change: To then leverage those separate paths by selling both of them.

Joe O'dea: Where we've gone with with that business.

Speaker Change: So I'll take this opportunity Joe to highlight what I think is more important than that which is that there is a there's a fair amount of overlap among the smartest end user customers between.

Joe O'dea: So to answer your last point there is no structural difference that would that would impede our ability to do that over time, but I want to emphasize that.

Joe O'dea: That our priority is is number one to continue the growth and performance of the existing business and then number two two to start to deliver things to the market that other people can't.

Speaker Change: Those who have used <unk> and those who have used.

Speaker Change: <unk> and <unk>.

Speaker Change: The platform.

Speaker Change: Their platform brand.

And then just on the go to market and you talked about.

Speaker Change: There is very interesting overlap there so.

Joe O'dea: Sort of encouraging feedback from systems integrators, but how much overlap is there in that system and in greater go to market today in terms of.

Speaker Change: One of my observations when I got here about <unk> was that it seems like the smartest customers buy this tech. The smartest end users same thing is true with with <unk> and <unk>. So.

Joe O'dea: The percentage of sort of QC and ISG revenue that would be going through the same systems integrators through separate and kind of that opportunity set.

Speaker Change: So as a result of that.

Speaker Change: The system integration community assistance integrator community, both for <unk> and for <unk>.

Joe O'dea: And then leverage those separate paths by selling both through them.

Speaker Change: For <unk> is very attractive because they have the opportunity to use the best technology and two two.

Joe O'dea: So I'll take this opportunity Joe to highlight what I think is more important than that which is that there is a there's a fair amount of overlap among the smartest end user customers between.

Speaker Change: To sell into the the most sophisticated customers so.

Speaker Change: So in that way, we are very similar so.

Joe O'dea: Those who have used <unk> and those who have used.

Speaker Change: We don't we don't have any initial plans for those systems integrator communities to overlap over time, but I do believe that we're going to have a natural pull from from the most sophisticated end users for the solutions that we will be able to deliver.

Joe O'dea: <unk> and <unk>.

Joe O'dea: The platform.

Joe O'dea: Their platform brand.

Joe O'dea: There is very interesting overlap there so.

One of my observations when I got here about <unk> was that it seems like the smartest customers buy this tech. The smartest end users same thing is true with with <unk> and <unk>. So.

Speaker Change: Understood I appreciate it.

Speaker Change: Thanks.

Speaker Change: Thank you.

Speaker Change: Our next question coming from the line of Chris Snyder with Morgan Stanley. Your line is now open.

Joe O'dea: So as a result of that.

Joe O'dea: The system integration community assistance integrator community, both for <unk> and for <unk>.

Speaker Change: Maybe just following up on all of the questions around the strategic rationale of <unk>. So it does seem like there is revenue synergy potential and maybe some moderate cost synergy potential is any of that factored into the kind of the 50 cents accretion that you guys are calling for this year.

For <unk> is very attractive because they have the opportunity to use the best technology and two two.

Joe O'dea: To sell into the the most sophisticated customers so.

Joe O'dea: So in that way, we are very similar so.

Speaker Change: Or is that really just kind of a continuation of the steady state business, we've seen a QC, which is growing in kind of generating mid teen margins to begin with.

Joe O'dea: We don't we don't have any initial plans for those systems integrator communities to overlap over time, but I do believe that we're going to have a natural pull from from the most sophisticated end users for the solutions that we will be able to deliver.

Speaker Change: Yes, welcome back Chris.

Speaker Change: So our expectation for the first 12 months or so of the businesses that they continue to operate as they have operated.

Speaker Change: And we will go through the integration process. So.

Joe O'dea: Understood I appreciate it.

Joe O'dea: Thanks.

Speaker Change: The I think revenue synergies are in in the future not the not the present as a result of this and.

Joe O'dea: Thank you.

Joe O'dea: Our next question coming from the line of Chris Snyder with Morgan Stanley. Your line is now open.

Speaker Change: And as I said, we don't feel the need to take cost out of their business, we want to prioritize growth.

Speaker Change: Thank you.

Speaker Change: Maybe just following up on all of the questions around the strategic rationale of <unk>, though it does seem like there is revenue synergy potential and maybe some moderate cost synergy potential is there any of that factored into the kind of the 50 cents accretion that you guys are calling for this year or is that really just.

Speaker Change: No I appreciate that and then.

Speaker Change: Obviously gross margin just continues to be a kind of a phenomenal story for the company.

Speaker Change: And I think on the last conference call, Neil you kind of talked about <unk>.

Speaker Change: Continuing to grow margins and I believe the 50 to 100.

Speaker Change: Basis point range.

A continuation of the steady state business, we've seen a QVC, which is growing in kind of generating mid teen margins to begin with.

Speaker Change: Over the medium to long term.

Speaker Change: It seems like that implies that you guys think gross margin can continue to push higher from these levels to drive that level of operating margin expansion I guess is that the right takeaway.

Yes, welcome back Chris.

Speaker Change: So our expectation for the first 12 months or so the business is that they continue to operate as they have operated.

Speaker Change: How do you see gross margin going from here I mean, it wasn't that long ago, where we were we were wondering if we could get the 42%. Thank you.

Speaker Change: And we will go through the integration process. So.

Speaker Change: The I think revenue synergies are in in the future not the not the present as a result of this and.

Karen: Karen you want to take that one yeah, Hey, Chris good to hear from you again.

Speaker Change: Youre right were really pleased with our growth profit margin expansion over the course of time, we were at 47, 2% this quarter, which was up 140 basis points year over year.

Speaker Change: And as I said, we don't feel the need to take cost out of their business, where we want to prioritize growth.

Speaker Change: No I appreciate that and then.

Speaker Change: Particularly at ABL, it's a reflection of the work we've done over the past few years on our strategy with product vitality service technology and productivity, but also the growth of intelligent spaces is having an impact on that gross profit margin. When you think about product vitality you've seen it on the presentation, we're not going to stop and we're going to.

Speaker Change: Obviously gross margin just continues to be kind of a phenomenal story for the company.

Speaker Change: And I think on the last conference call Neil you kind of talked about.

Speaker Change: <unk> continuing to grow margins and I believe the 50 to 100 base.

Speaker Change: Basis point range.

Speaker Change: I guess medium to long term.

Speaker Change: Products like what we highlighted last quarter with the holiday.

Speaker Change: It seems like that implies that you guys think gross margin could continue to push higher from these levels to drive that level of operating margin expansion I guess is that the right takeaway and how do you see gross margin going from here I mean, it wasn't that long ago, where we were wondering if we could get the 42%. Thank you.

We are delivering higher value products with less material com contents to answer your question, Yes, we think theres still some room there.

Speaker Change: Our comment last quarter was on the 50 to 100 basis points of margin improvement at ABL from an operating profit perspective.

Aaron do you want to take this one yeah, hey, Chris good to hear from you again.

Speaker Change: We do think that over the course of time that business will continue to improve margin, where we're going to make some investments we've talked about technology investments that we need to make to power. Our gross profit margins that you may see a little bit more investment in SG&A to get benefits elsewhere, but overall, we feel really good about that business continuing to perform at improved margins.

Speaker Change: Youre right were really pleased with our growth profit margin expansion over the course of time, we were at 47, 2% this quarter, which was up 140 basis points year over year.

Speaker Change: Particularly at ABL, it's a reflection of the work we've done over the past few years on the strategy with product vitality service technology and productivity, but also the growth of intelligent spaces is having an impact on that gross profit margin. When you think about product vitality you've seen it on the presentation, we're not going to stop and we're going to have products.

Speaker Change: Over time.

Speaker Change: Thank you I appreciate all that.

Speaker Change: Thank you.

Speaker Change: Our next question coming from the line of Chris.

Speaker Change: Christopher Glynn with Oppenheimer. Your line is now open.

Speaker Change: What we highlighted last quarter with the holiday, so where we're delivering higher value products with less material content. So to answer. Your question, Yes, we think theres still some room, there and our comment last quarter was on the 50 to 100 basis points of margin improvement at ABL from an operating profit perspective.

Speaker Change: Thanks.

Speaker Change: Good detail on <unk> so.

Speaker Change: A little more.

You've talked about the last three quarters.

Speaker Change: The agency activity being fairly positive input and some project delays and release times a factor there. So I'm wondering if the agency activity is still suggesting a bit of a momentum build opportunity as the year goes on and if.

Speaker Change: We do think that over the course of time that business will continue to improve margins, where we're going to make some investments we've talked about technology investments that we need to make to power. Our gross profit margins that you may see a little bit more investment in SG&A to get benefits elsewhere, but overall, we feel really good about that business continuing to perform and improve margins over time.

Financing and inflation are the main pacing items for the relief to coalesce.

Chris Snyder: Yes, Chris.

Speaker Change: Jim.

Speaker Change: Chris I think those are those are good questions. So.

Jim: Thank you I appreciate all that.

Big picture.

Jim: Thank you.

Speaker Change: Sure.

Jim: Our next question coming from the line of <unk>.

Speaker Change: I'll react to kind of the agency network in General Our agency network continues to perform so the independent sales network is an important part of what we do in ABL.

Jim: Christopher Glynn with Oppenheimer. Your line is now open.

Jim: Thanks.

Speaker Change: Good detail on <unk> so.

Speaker Change: Highlighted their performance or the performance of that channel earlier in the call.

Jim: A little more.

Jim: You've talked about the last three quarters.

Speaker Change: As we look at data to predict the future for US we do look at inflation, we do look at interest rates, we do look at <unk>.

Jim: Agency activity being fairly positive input.

Jim: Some project delays and release times a factor there. So I'm wondering if the agency activity is still suggesting a bit of a momentum build opportunity as the year goes on and.

Speaker Change: We look at.

Speaker Change: Kind of a few other factors and all of those collectively point towards a trend which improves in 'twenty five.

Speaker Change: It's unclear exactly what.

Jim: Financing and inflation are the main pacing items for the release to coalesce.

Speaker Change: Let me rephrase that it's unclear to me personally exactly what what opens those and I'm not sure. It's consistent based on the data that we've seen.

Jim: Yes, Chris.

Chris I think those are those are good questions. So.

Jim: Big picture.

Speaker Change: Having said that net net.

Jim: And.

Jim: Ill react to kind of the agency network in General Our agency network continues to perform so be it.

Speaker Change: The sentiment is.

Speaker Change: Is it remains strong in our in our agency community we.

Jim: Tenant sales network is.

Speaker Change: We a we talk to them.

Jim: An important part of what we do at ABL.

Speaker Change: We survey them on a regular basis.

Jim: I highlighted their performance the performance of that channel earlier in the call.

Speaker Change: <unk>.

Speaker Change: Everyone expects this to be a to be a kind of normal and accelerating performance overtime.

Jim: As we look at data to predict the future for US we do look at inflation. We do look at interest rates, we do look at Abi Abi we look at.

Speaker Change: Not everybody the majority expected to be.

Speaker Change: Proving overtime so.

Speaker Change: Net net this feels sort of normal not like theres going to be a floodgate that opens or anything like that but.

Jim: Kind of a few other factors and all of those collectively point towards a trend which improves in 'twenty five.

Speaker Change: It feels like a steady build from here.

Jim: It's unclear exactly what.

Speaker Change: Okay, great. So it sounds like normal seasonal patterns is a very good baseline for us to focus on you would say for ABL.

Jim: Let me rephrase that it's unclear to me personally exactly what what opens those and I'm not sure. It's consistent based on the data that we've seen.

Speaker Change: Yes, I think thats, the starting point and and we'll see if we can outgrow that.

Jim: Having said that net net.

Speaker Change: Great. Thank you.

Jim: The sentiment is.

Speaker Change: Thank you.

Jim: <unk> remains strong and our and our agency community we.

Speaker Change: Our next question coming from the line of Jeff Jeffrey Sprague with vertical research. Your line is now open.

Jim: We talk to them, but we.

Jim: We survey them on a regular basis.

Speaker Change: Hey, Thank you good morning, everyone.

Jim: <unk>.

Jim: I expect this to be a to be a kind of normal and accelerating performance over time.

Speaker Change: Maybe just a couple of loose ends for me a lot of ground covered.

Speaker Change: First just wanted to touch base on.

Speaker Change: On ABL operating margins, which did tick down a little bit. So maybe the larger question is in terms of what's going on with us DNA and investment in the <unk>.

Jim: Not everybody the majority expected to be improve.

Improving overtime so net.

Jim: Net net this feels sort of normal not like theres going to be a floodgate that opens or anything like that but but it feels like a steady build from here.

Speaker Change: Fact that gross margin and operating margin went in different directions in the quarter.

Speaker Change: Okay, great. So it sounds like normal seasonal patterns as very good baseline for us to focus on you would say for ABL.

Jeff: Yeah, So Jeff.

Jeff: As I talked about before we are continuing to make some investments in ABL and if you look at it sequentially kind of on a dollar basis, you'll see that our expenses are more consistent with where we trended in the back half of last year. So the opportunity really is to continue to manage those expenses and as sales come back as we described.

Speaker Change: Yes, I think thats, the starting point and we will see if we can outgrow that.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question coming from the line of Jeff Jeffrey Sprague with vertical research. Your line is now open.

Jeff: Little bit more in the second half then you'll see the percent of sales start to improve but we feel good about our management of those investments, we will invest in technology, which could.

Speaker Change: Hey, Thank you good morning, everyone.

Speaker Change: Maybe just a couple of loose ends for me a lot of ground cover.

Speaker Change: First just wanted to touch base on.

Jeff: <unk> identified some benefits elsewhere in the P&L, but overall, we think theres opportunity to leverage some of those fixed expenses.

Speaker Change: On ABL operating margins, which did tick down a little bit. So maybe the larger question is in terms of what's going on with us DNA and investment.

Jeff: Operating expenses as we come back and grow sales a little bit higher in the back half of the year.

Speaker Change: The gross margin and operating margin went in different directions in the quarter.

Speaker Change: And then Neal.

Speaker Change: The idea of sort of the smartest most sophisticated customers using this to U S C.

Speaker Change: Sure, Yes, so geoff.

Speaker Change: As I talked about before we are continuing to make some investments in ABL and if you look at it sequentially kind of on a dollar basis Youll see that our expenses are more consistent with where we trended in the back half of last year. So the opportunity really is to continue to manage those expenses and as sales come back as we've described.

Speaker Change: Is there a common theme as it relates to that customer type in terms of.

Speaker Change: No.

Speaker Change: Youth or lack thereof of the company or a business or the vertical market or.

Speaker Change: Some.

Speaker Change: Some characteristic that you'd say applies across that set of customers that you were concerned.

Speaker Change: A little bit more in the second half then you'll see the percent of sales start to improve but we feel good about our management of those investments, we will invest in technology, which could identify some benefits elsewhere in the P&L, but overall, we think theres opportunity to leverage some of those fixed expenses or the operating expense.

Speaker Change: Yes, Jeff I would say that.

Speaker Change: The things that that.

Speaker Change: I have identified about the consistency of those customers is generally that their technology forward. They manage their operations centrally and they want to get consistency across their fleet of buildings or locations.

Speaker Change: As we come back and grow sales a little bit higher in the back half of the year.

So theyre looking for one productivity of the uses of their space.

Neal: And then Neal.

Neal: Idea of sort of the smartest most sophisticated customers.

Speaker Change: Number one.

Speaker Change: And number two theyre looking for productivity and how they are able to manage those spaces. So.

Neal: Using this to see.

Neal: Is there a common theme as it relates to that customer type in terms of.

Speaker Change: And I'll give you two specific examples so we had the disc Tech conference that we mentioned so.

Neal: I don't know.

Youth or lack thereof of the company or a business or the vertical market or.

Speaker Change: Connect conference in Nashville at 700 systems integrators, who showed up they paid to attend.

Neal: Some.

Neal: Some characteristic that you'd say applies across that set of customers that youre referencing.

It's a it's a combination of family reunion.

Neal: Yes, Jeff I would say that.

Neal: The things that that.

Speaker Change: Kind of tech forward a business opportunity.

Neal: I have identified about the consistency of those customers is generally that their technology forward. They manage their operations centrally and they want to get consistency across their fleet of buildings or locations.

So we were there in <unk>.

And one of the panels was a obviously it was a was one of our.

Speaker Change: Some of our best customers from our what we call our building Advisory Council.

Speaker Change: So the Guy who runs facilities for Stanford University was talking about the benefits of using.

Neal: So theyre looking for one productivity of the uses of their space.

Speaker Change: Using <unk> and the leverage ability that you get they get over their over their campus by the consistency and the technology that <unk> provides them.

Neal: Number one.

And number two theyre looking for productivity in how they are able to manage those spaces. So.

Neal: And I'll give you two specific examples so we had the disc Tech conference that we mentioned so.

Speaker Change: Similarly.

Speaker Change: If you go to <unk> website, they have a ton of case studies on fuses, which are really interesting to read out.

Neal: <unk> connect conference in Nashville at 700 systems integrators, who showed up they paid to attend.

Speaker Change: Highlight.

Speaker Change: One that I found really interesting, which is Indiana University.

Neal: It's a combination of family reunion.

Speaker Change: Basically normalized each of their each of their class room.

Neal: Kind of tech forward a business opportunity.

Speaker Change: Interfaces, so large space of small spaces. So that there is a consistency to the end user when they walk into that space of how it operates which gives them a significant amount of additional productivity and they can manage that centrally so.

So we were there in <unk>.

Neal: And one of the panels was obviously it was a it was one of our.

Neal: Some of our best customers from our what we call our building Advisory Council.

Neal: So the Guy who runs facilities for Stanford University was talking about the benefits of using.

Speaker Change: So the trends become the same which is technology, which is creating data getting closer to the the CIO then head of facilities that are driving end user outcomes in this space and are driving productivity to the organization and how they manage the space.

Neal: Using <unk> and the leverage ability that fee get they get over their over their campus by the consistency and the technology that <unk> provides them.

Neal: Similarly.

Neal: If you go to <unk> website, they have a ton of case studies on <unk>, which are really interesting to read out.

Speaker Change: Alright, Thank you and maybe just one quick one for Karen I'm, sorry, Karen you mentioned purchase accounting and inventory and all that is adjusted out of your construct will correct.

Neal: Highlight.

Neal: One that I found really interesting, which is Indiana University.

Yes. It is all of that would not be included in our adjusted diluted earnings per share expectation correct.

Neal: Basically normalized each of their each of their class room.

Speaker Change: Alright, Thank you everyone.

Neal: Interfaces, so large space of small spaces. So that there is a consistency to the end user when they walk into that space of how it operates which gives them a significant amount of additional productivity and they can manage that centrally so.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of Brian <unk> with Morningstar. Your line is now open.

Speaker Change: Okay.

Neal: So the trends become the same which is technology, which is creating data getting closer to the the CIO then head of facilities that are driving end user outcomes in this space and are driving productivity to the organization and how they manage the space.

Speaker Change: Alright, thank you.

Speaker Change: Just wanted to ask on ABL and specifically on the design select product portfolio.

Speaker Change: The traction youre seeing there with customers.

Speaker Change: Yes, Brad welcome.

Speaker Change: The.

Speaker Change: As we've highlighted the portfolio segmentation strategy is really about how we drive growth and productivity for ourselves and our partners. So the design select portfolio. It's really is.

Speaker Change: Alright, Thank you and maybe just one quick one for Karen I'm, sorry, Karen you mentioned purchase accounting and inventory and the like all of that's adjusted out of your cost structure, though correct.

Speaker Change: It's really.

Speaker Change: Created to drive growth and productivity with the.

Speaker Change: Yes. It is all of that would not be included in our adjusted diluted earnings per share expectation correct.

Speaker Change: The design community not surprisingly given the name.

Speaker Change: And how they can execute their their projects.

Speaker Change: Alright, Thank you everyone.

Speaker Change: Okay.

Speaker Change: Traction is is good there were our.

Speaker Change: Our growth as we expect this to be a a.

Speaker Change: Thank you.

Speaker Change: Multi year three to five year kind of progression for us.

Speaker Change: And our next question coming from the line of Brian <unk> with Morningstar. Your line is now open.

Speaker Change: The percentage of our sales, which are attributable to design select is ahead of where we expected it to be to be at this point, but we're still really early in the process. So we're in the second inning of second third inning of what we think we can do with with design select but the reaction from the from the external community has been.

Okay.

Speaker Change: Hi, Thank you.

Speaker Change: Just wanted to ask on ABL.

Speaker Change: Specifically on the design select product portfolio.

Speaker Change: Just the traction youre seeing there with customers.

Speaker Change: Yes, Brad welcome.

Speaker Change: The.

Speaker Change: Has been very strong they understand the premise they understand how it creates value for them and and Theyre starting to selected the gating item for us is.

Speaker Change: It's really.

Speaker Change: Is we're going to we're going to roll it out in overtime, meaning the products that are available to that when we get those products right. So we're not we're not muscling through this we're doing this the right way to create long term value.

Speaker Change: Created to drive growth and productivity with the.

Speaker Change: The design community not surprisingly given the name.

Speaker Change: And how they can execute their their projects.

Speaker Change: Traction is is good there were.

Speaker Change: Our growth as we expect this to be a multi year three to five year kind of progression for us.

Speaker Change: That's great and then maybe for Karen just on capital allocation for the remainder of the year end.

Speaker Change: Just curious what youre thinking in terms of potential debt paydown, if any as part of that.

Speaker Change: Sure.

Speaker Change: Yeah.

Speaker Change: So first on capital allocation, let me just reiterate our priorities. So our priorities for capital allocation are to invest in our current businesses for growth invest in M&A as you clearly see what we're doing there increase our dividend and then also to make share repurchases. So to address your question specifically, we do journey.

Has been very strong they understand the premise they understand how it creates value for them and.

Speaker Change: They are starting to selected the gating item for US is is we're going to we're going to roll it out.

Speaker Change: Great a lot of cash and as we said when we announced the acquisition is we do have the ability to pay down this debt pretty quickly to give us options to do more things in the future. So with our cash generation, we can address all of our capital allocation priorities, including paying over the paying down the debt over the next.

Speaker Change: In overtime, meaning the products that are available to that when we get those products right. So we're not we're not muscling through this we're doing this the right way to create long term value.

Speaker Change: 12 months to 18 months.

Speaker Change: That's great and then maybe for Karen just on capital allocation for the remainder of the year end.

Speaker Change: I would also highlight we did resume our share repurchase program. This quarter, we will out of the market a little bit because of the announcement of USA that we entered late in the quarter, probably just had the last month of the quarter.

Just curious what youre thinking in terms of potential debt paydown, if any as part of that thank.

Speaker Change: Sure Yes.

Speaker Change: Looks a little bit light, but we continue to be pleased with our repurchase program and the outcome of that program and so expect that to continue as well.

Speaker Change: So first on capital allocation, let me just reiterate our priorities. So our priorities for capital allocation are to invest in our current businesses for growth.

Speaker Change: Best in M&A as you clearly see what we're doing there increase our dividend and then also to make share repurchases.

Speaker Change: Thank you I'll leave it there.

Speaker Change: Yeah.

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

Speaker Change: To address your question, specifically, we do generate a lot of cash and as we said when we announced the acquisition is we do have the ability to pay down this debt pretty quickly to give us options to do more things in the future. So with our cash generation that we can address all of our capital allocation priorities, including paying over the paying down the debt.

Speaker Change: Great. Thank you operator, thank you all for joining US. This morning, obviously, we are pleased with our performance in the first quarter, we as we said in the prepared remarks.

Speaker Change: We have the best lighting company in North America is performing we have a clear algorithm for growth and the opportunity to continue to increase margins. We also now have a larger scale intelligent spaces business, which brings together data and control in a way that is unique to us and we believe can provide differentiated opportunities and <unk>.

Speaker Change: Over the next.

Speaker Change: To 18 months.

Speaker Change: I would also highlight we did resume our share repurchase program. This quarter, we will out of the market a little bit because of the announcement of USB. So we've entered.

Speaker Change: Late in the quarter, probably just had the last month of the quarter. So it looks a little bit light, but we continue to be pleased with our repurchase program and the outcome of that program and so expect that to continue as well.

Speaker Change: Growth in the in the marketplace, we're clear on how we create value we grow net sales return profits into cash and we don't grow the balance sheet as fast. So thank you for joining us. This morning, and we look forward to talking to you again next quarter.

Speaker Change: Thank you I'll leave it there.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Ladies and gentlemen that does conclude the conference for today. Thank you for your participation you may now disconnect.

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

Speaker Change: Great. Thank you operator, thank you all for joining US. This morning, obviously, we are pleased with our performance in the first quarter.

Neal: As we said in the prepared remarks.

Neal: The best lighting company in North America is performing we have a clear algorithm for growth and the opportunity to continue to increase margins. We also now have a larger scale intelligent spaces business, which brings together data and control in a way that is unique to us and we believe can provide differentiated opportunities and grow.

Neal: <unk> in the marketplace, we're clear on how we create value we grow net sales return profits into cash and we don't grow the balance sheet as fast. So thank you for joining us. This morning, and we look forward to talking to you again next quarter.

Speaker Change: Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.

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Speaker Change: Good morning, and welcome to acuity brands fiscal 2025 first quarter earnings call. At this time, all participants are in a listen only mode.

Speaker Change: The speaker's 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'd now like to turn the conference over to Charlotte Mclaughlin, Vice President of Investor Relations. Please go ahead.

Speaker Change: Thank you operator.

Speaker Change: Good morning, and welcome to the acuity brands fiscal 2025 first quarter earnings call.

Speaker Change: On the call with me this morning, and ill ask Chairman, President and Chief Executive Officer, and Karen <unk>, Our senior Vice President and Chief Financial Officer.

Today's call will include updates on our strategic progress and then our fiscal 2025 first 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 at 1995.

Speaker Change: As detailed on slide two of the accompanying presentation.

Speaker Change: Reconciliations of certain non-GAAP financial metrics with our corresponding GAAP measures are available in our 2025 first quarter earnings release and supplemental presentation.

Both of which are available on our Investor Relations website at Www Dot <unk>.

Speaker Change: <unk> does acuity brands Dot com.

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

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

Neil: Our fiscal 2025 first quarter performance was solid we delivered sales growth expanded our adjusted operating profit and adjusted operating profit margin and increased our adjusted diluted earnings per share.

Neil: We're also pleased to welcome <unk> to acuity, having successfully closed the acquisition last week.

Neil: Now.

Turning to acuity brands lighting we.

Neil: We continued to perform well delivering sales growth in the first quarter. Our performance is more predictable repeatable and scalable as a result of the continued actioning of our strategy 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.

Our strategy has informed the development of our differentiated product portfolios contractor select design select and made to order today billing us to drive growth and productivity for ourselves and for our partners.

Neil: With contractor select we are driving growth and productivity for our electrical distributors by lowering their cost of doing business and empowering them to carry less inventory.

Neil: The design select we're focused on delivering productivity to architects lighting specifier design build contractors and electrical contractors by enabling them to choose the right configurable products for their projects.

Neil: Our portfolios are constructed with high levels of product vitality.

Neil: In contractor select this quarter, we launched two new products to Rep and the rebel round High Bay.

Neil: Both products features switchable technology and offer multiple functionality with the end result, being that distributors can carry fewer skus, while providing more options for customers.

Neil: To wrap from Lithonia lighting enhances the traditional route offering even lighting for spaces with limited natural lighting options like locker rooms storage utility areas garages and offices.

Neil: Tier three adjustable lumen settings, and three switchable color temperature settings.

Neil: The rebel round high Bay delivers uniform illumination for large open spaces like industrial facilities and indoor sports arenas.

Neil: In addition to offering an expanded lumen range with switchable color temperature options. It is manufactured to withstand harsh conditions and can be easily integrated with our sensor switch controls for improved energy savings.

Neil: These innovations are important to our customers and our team has once again been recognized for the value they deliver in.

Neil: In the first quarter many of our lighting solutions were selected for the Grand Prix to design awards in international competition that celebrates the excellence and talent of creative professionals and firms.

Neil: Our winters included mochi by cyclone Hydro flame and several Eureka products, including the <unk> family and the Frank Joe Lee Bulky and Merrell luminaries.

Our aluminum serious pro was recognized by the architects newspapers best of product Awards, which elevates well designed products, serving the architecture and design community.

Neil: The serious pro family includes interior and exterior <unk> for a seamless aesthetic transition.

Neil: The luminaries are compatible with our inlay controls, allowing seamless control of indoor and outdoor spaces, while reducing energy costs eating and building compliance and improving occupant comfort.

Speaker Change: Now moving on to intelligence basis, which delivered another strong quarter of sales growth and margin performance.

Speaker Change: In <unk>, we are focused on where we compete and what we can control to expand our addressable market.

Speaker Change: As part of our geographic expansion. This quarter, we continued to add systems integrator capacity in the U K Asia and Australia.

Speaker Change: <unk> partners with the best S size and specific geographies to sell our full suite of controls sensors and applications.

Speaker Change: During the conference, we launched new products and applications and deliver an updates on the latest technology trends, while also offering technical training.

Speaker Change: This year was the highest attendance since the event began and highlighted the continued strength and importance of our relationships across the building management systems industry.

Speaker Change: We are thinking about spaces differently, we're using data to maximize occupant experience and transform spaces.

Speaker Change: Last week, we closed our acquisition of <unk>.

Speaker Change: Through Distich Atreus and QC, we can now control both how space is managed and what happens in that space with our disruptive technologies that promote end user satisfaction through data interoperability.

Speaker Change: Aligning the in person and virtual experience by seamlessly transitioning between microphones and cameras based on who is speaking and where they're located user.

Speaker Change: Using data points to optimize lighting levels lowering shades that there is an increase glare.

Speaker Change: And if a meeting is cancelled reverting or room back to its unoccupied settings to save energy and lower costs.

Speaker Change: We're excited about the addition of <unk> two intelligent spaces as we continued to execute on our mission.

Speaker Change: Now looking forward, we are an industrial technology company with the best lighting company in North America, and a larger scale intelligence basis business, our path to growth and profitability is clear in both segments.

Speaker Change: And of acuity brands lighting, our growth algorithm is grow with the market.

Speaker Change: <unk> share and enter verticals, where we have either not historically competed or where we are underpenetrated.

Speaker Change: We will continue on our path to improve margins.

Speaker Change: And intelligent spaces through Distich Atreus and QC, we can now control both how our spaces managed and what happens in that space with our disruptive technologies that promote end user satisfaction through data interoperability.

Speaker Change: Our focus will be on growth and we have the opportunity to expand margins.

Speaker Change: We are creating value by growing net sales turning profits into cash and not growing the balance sheet as fast and we are demonstrating that we are effective capital allocators.

Speaker Change: Now I'll turn the call over to Karen who will update you on our first quarter performance and provide more details of the expected financial impact of the <unk> acquisition.

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

Karen: We delivered solid performance in our first quarter of fiscal 2025, we.

Karen: We grew sales improved our adjusted operating profit and margin and increased our adjusted diluted earnings per share.

For total <unk>, we generated net sales in the first quarter of $952 million, which was $17 million or 2% above the prior year as both lighting and intelligent spaces grid.

Karen: During the quarter, our adjusted operating profit was $159 million.

Karen: $5 million or 3% from last year, and we expanded our adjusted operating profit margin to 16, 7% an increase of 20 basis points from the prior year.

This increase was largely a result of the significant year over year improvement in our gross profit margin driven by product vitality, the management of price and cost and productivity improvements.

We generated net interest income as a result of the cash position on our balance sheet.

Karen: This quarter, our effective tax rate of 28% was lower than last year and lower than the expected full year rate of around 23, 5% due to discrete items in the quarter.

Finally, our adjusted diluted earnings per share of $3 97.

Karen: Increased 25, 7% over the prior year.

Karen: And acuity brands lighting, net sales were $886 million, which was $10 million or 1% above the prior year, primarily the result of sales growth and our independent sales network and in our direct sales channel.

Karen: Adjusted operating profit was $154 million and we delivered adjusted operating profit margin of 17, 3%, which was down slightly compared to the prior year.

Karen: Sales of intelligent spaces for the first quarter were $74 million, an increase of 15% year over year is just that continued to deliver impressive growth.

Karen: Adjusted operating profit and intelligent spaces was $15 million with an adjusted operating profit margin of 21% an improvement of five percentage points year over year.

Karen: Now turning to our cash flow performance.

Karen: In the first quarter of 2025, we generated $132 million of cash flow from operations.

Karen: We earned attractive returns on the cash that we have on our balance sheet and we ended the quarter with $936 million of cash.

Karen: We closed the acquisition of <unk> last week.

Karen: We financed this acquisition with $600 million of additional debt and the remainder with cash on hand.

Karen: During the quarter, we resumed our share repurchase program and allocated approximately $5 million to repurchase approximately 17000 shares.

Karen: I'd now like to spend a few minutes updating our outlook for 2025 to the inclusion of <unk>.

Karen: <unk> will be reported in our results beginning in January.

Karen: Our updated expectations for full year fiscal 2025 is that net sales will be within the range of $4 3 billion and $4 5 billion for total a yi.

Karen: And we expect adjusted diluted earnings per share within the range of $16 50.

Karen: To $18.

Karen: Additionally, we now expect to have full year interest expense of between $20 million and $25 million for the full year fiscal 2025.

Karen: We will incur integration expenses as well as the impact of purchase accounting adjustments throughout the year.

Karen: We're pleased with our performance in the first quarter of fiscal 2025.

Karen: Our lighting business continued to perform well and our intelligent spaces business delivered impressive results.

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

Speaker Change: Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced.

Speaker Change: So we're trying a question simply press star one again, please standby, while we compile the Q&A roster.

Speaker Change: My first question is coming from the line of Ryan Merkel at William Blair. Your line is now open.

Ryan Merkel: Hey, good morning, everyone. Thanks for taking the question.

Ryan Merkel: First off just wanted to ask on <unk> any accretion and thanks for updating the guide, but could you give us the full 12 months of accretion that you're expecting from <unk>.

Ryan Merkel: Hey, good morning, Ryan.

Ryan Merkel: Thanks, everyone for being with US this morning so.

Ryan Merkel: Actually it's not really relevant the full year, so but if.

Ryan Merkel: If you were to roll this forward on a calendar basis I think you would directionally have the.

Ryan Merkel: The ability to do that just we have about eight months of this year. So so a 12 looking forward but.

Ryan Merkel: And that is a unique combination of data collection and the ability to control that data and do things with it. So so we're really pleased with that we're off to we are off to a really good start with with the team at USC and were excited that theyre part of acuity.

Speaker Change: Okay helpful. And then can you just comment on order trends and if visibility has improved on the backlog and the pipeline with those projects potentially getting released.

Speaker Change: Yes, so so Ryan I think youre, referring more to the lighting business there.

So.

Speaker Change: On the lighting side, where as we said in the prepared remarks, we're pleased with the performance the.

Our team there is executing consistently and where we're clear on the growth algorithm as we as we look forward.

Speaker Change: Obviously, we believe that calendar 'twenty five as is.

Speaker Change: Going to from a market perspective, better than calendar 'twenty four.

Speaker Change: We base that assumption on our view of data.

Speaker Change: External data going forward number one and second then our interaction with.

Speaker Change: With the field number too.

Speaker Change: That that is strong if you dig into our Q1 numbers youll see that.

Speaker Change: Our C&I channel performed performed pretty well, our retail channel did not perform great, but but that's really just a point in time, so when you roll that forward.

It gives us confidence for for the rest of this year and beyond.

Speaker Change: And if I could just follow up on that last point I noticed that the corporate accounts and retail were down but the most important segment that independent channel was up so is the read here that youre starting to see sort of demand recovery demand inflection or is it a bit too early.

Speaker Change: Let's call that when it happens so.

Speaker Change: The as you know on our corporate accounts.

Speaker Change: That's a.

Speaker Change: It's an inconsistent business, but a high quality business. So we will have some big quarters, and some smaller quarters based on individual customer decisions.

And then on the retail side, we have great relationships there so.

Speaker Change: They haven't had great results over the course of the last year or so so this is a little bit of a catch up but that's just the point in time so.

Speaker Change: I think it's early to call the call the inflection, but obviously, we're confident in where we're going in calendar 'twenty five.

Speaker Change: Alright, thanks, so much best of luck.

Speaker Change: Thanks.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of Tim.

Tim <unk> with R. W. Baird. Your line is now open.

Speaker Change: Hey, everybody good morning.

Good morning, I guess just to start just a first question just on the guide I. Just wanted to confirm is is the guide raised solely for <unk> and the core is unchanged or did you guys make any changes to kind of the core guidance.

Speaker Change: Hey, good morning, Tim Yes.

Speaker Change: Guidance is that just the adjustment for <unk>, we expect the base business to perform as we laid out in the fourth quarter and so the increase in the sales that you see an increase in EPS is really due to the impact of USD and then also the additional interest expense.

Speaker Change: Okay. Okay, Great and then just maybe on <unk> just what's been the initial feedback from your system integrator customers and could you give us maybe.

Speaker Change: Historical example, or two of just just how these kind of businesses kind of piece together and why it makes sense to have some under one roof.

Speaker Change: <unk> built space, what happens in a build space and who is going to build space. So the ability to build a data and controls business. Then is a differentiated opportunity that we believe we've identified.

Speaker Change: So these have not historically overlapped so having said that the initial response from the systems integrator community at <unk> and the systems integrator community at.

Speaker Change: <unk> was hey can we sell the other one now and which is exactly what we expected we're not doing that yet however, so our strategy for four.

We're bringing this online is that we believe that number one this is a super high quality asset and there and we want and expect them to continue to perform as they have been performing so that's kind of step one step two is we have the opportunity to create end user opportunities through the combination.

Speaker Change: Data and data interoperability and that will happen over the next 12 months to 24 months.

Speaker Change: And then finally, we're confident that they will benefit from being part of our organization and how we do things to drive their value. So.

Speaker Change: A specific example of already how these come together, though is that.

Speaker Change: We initially met the company's.

Speaker Change: Through the interaction is in engineering and product level between <unk> and at USC.

Speaker Change: No.

Speaker Change: <unk>.

Speaker Change: Are those now.

Speaker Change: Before.

Speaker Change: I guess I'd summarize it Tim by saying, there's been there's been a lot of talk and not a whole lot of action.

So.

Speaker Change: So we have not.

Speaker Change: <unk>.

Speaker Change: For ourselves for example, we've made very small kind of targeted changes in.

Speaker Change: Our purchasing.

Speaker Change: Which are kind of no regrets decisions about.

Speaker Change: What might.

Speaker Change: Potentially happen in the future from a customer perspective, we've had a lot of customers asking us.

Speaker Change: If we're going to increase prices and when because of tariffs.

Speaker Change: And then that that conversation sort of died down I'd say the the.

Speaker Change: Fair enough good good job and good luck on the risk that you guys.

Speaker Change: Thanks, Tim.

Speaker Change: Thank you.

Speaker Change: Our next question coming from the line of <unk>.

Joe O'dea: Joe <unk> with Wells Fargo. Your line is now open.

Joe O'dea: Hi, good morning, Thanks for taking my questions.

Speaker Change: Hey, Joe.

Joe O'dea: Hey can you.

Joe O'dea: Can you just talk about the <unk> margin opportunity over time.

Joe O'dea: Looks like what's embedded in the guide for 'twenty, five now, including QC would put there.

Joe O'dea: Revenue, maybe up low double digits year over year, so so pretty attractive growth rate is not too dissimilar from from ISG. It.

It looks like on the margin profile, we may be looking at QVC up margins kind of mid teens versus the 20% ish for ISG. So when you think about that margin gap.

Speaker Change: The structural differences there and how do you think about the timeline to narrowing that.

Joe O'dea: Yes, so I'll take you back to what we said when we when we announced the acquisition, Joe which is that.

Joe O'dea: This is an attractive opportunity first of all to bring together talked about that already second the underlying business is a strong business, which we have which we think has similar.

Joe O'dea: Financial profile to our existing.

Joe O'dea: Assets in our intelligence basis business. So so I think youre right.

Joe O'dea: It's kind of mid teens, we're counting on mid teens low to mid teens growth rate for them, which is consistent with where we currently are.

Joe O'dea: Our priority is growth. So so we did not make this acquisition with the expense with the expectation that we would be taking costs out we don't need to.

Joe O'dea: Excuse me there is a natural opportunity to increase the margins over time as we grow similarly to what we've done with with this second the ISG business. So you can see that over the course of the last three years.

Joe O'dea: Where we've gone with with that business.

Joe O'dea: So to answer kind of your last point there is no structural difference that would.

Joe O'dea: That would impede our ability to do that over time, but I want to emphasize that.

Joe O'dea: That our priority is is number one to continue the growth and performance of the existing business and then number two to start to deliver things to the market that other people can't.

Speaker Change: And then just on the go to market and you talked about.

Speaker Change: Sort of encouraging feedback from systems integrators, but how much overlap is there in that system and greater go to market today in terms of.

Speaker Change: The percentage of sort of QC and ISG revenue that would be going through the same systems integrators through separate and kind of that opportunity set.

Speaker Change: To then leverage those separate paths by selling both through them.

Speaker Change: Those who have used <unk> and those who have used.

Speaker Change: <unk> and <unk>.

The platform.

Speaker Change: Their platform brand.

Speaker Change: There is very interesting overlap there so.

Speaker Change: So as a result of that.

Speaker Change: The system integration community assistance integrator community, both for <unk> and for <unk>.

Speaker Change: For <unk> is very attractive because they have the opportunity to use the best technology and two two.

Speaker Change: To sell into the the most sophisticated customers so.

Speaker Change: So in that way, we are very similar so.

Speaker Change: We don't we don't have any initial plans for those systems integrator communities to overlap over time, but but I do believe that we're going to have a natural pull from from the most sophisticated end users for the solutions that we will be able to deliver.

Speaker Change: Understood I appreciate it.

Speaker Change: Thanks.

Speaker Change: Thank you.

Speaker Change: Our next question coming from the line of Chris Snyder with Morgan Stanley. Your line is now open.

Speaker Change: Maybe just following up on all of the questions around the strategic rationale of <unk> no. It does seem like there is revenue synergy potential and maybe some moderate cost synergy potential is any of that factored into the kind of the 50 cents accretion that you guys are calling for this year.

Or is that really just kind of a continuation of the steady state business, we've seen a QC, which is growing in kind of generating mid teen margins to begin with.

Speaker Change: Yes, welcome back Chris.

Speaker Change: So our expectation for the first 12 months or so of the business is that they continue to operate as they have operated.

Speaker Change: And we will go through the integration process. So.

Speaker Change: The I think revenue synergies are in in the future not the not the present as a result of this and.

Speaker Change: And as I said, we don't feel the need to take cost out of their business, where we want to prioritize growth.

Speaker Change: No I appreciate that and then.

Speaker Change: Obviously gross margin just continues to be kind of a phenomenal story for the company.

Speaker Change: And I think on the last conference call Neil you kind of talked about.

Speaker Change: <unk> continuing to grow margins and I believe the 50 to 100 base.

Speaker Change: Basis point range.

Speaker Change: I guess medium to long term.

Speaker Change: Aaron you want to take this one yes, hey, Chris good to hear from you again.

Speaker Change: Youre right were really pleased with our gross profit margin expansion over the course of time, we were at 47, 2% this quarter, which was up 140 basis points year over year.

Speaker Change: We do think that over the course of time that business will continue to improve margins.

Speaker Change: Going to make some investments we've talked about technology investments that we need to make to power. Our gross profit margins that you may see a little bit more investment in SG&A to get benefits elsewhere, but overall, we feel really good about that business continuing to perform and improve margins over time.

Speaker Change: Thank you I appreciate all that.

Speaker Change: Thank you.

Speaker Change: Our next question coming from the line of.

Speaker Change: Christopher Glynn with Oppenheimer. Your line is now open.

Speaker Change: Thanks.

Speaker Change: Good detail on <unk> so.

Speaker Change: A little more.

Speaker Change: You've talked about the last three quarters.

Speaker Change: Financing and inflation are the main pacing items for the release to coalesce.

Chris Snyder: Yes, Chris.

Chris Snyder: Chris I think those are those are good questions. So.

Speaker Change: Big picture.

Speaker Change: I'll react to kind of the agency network in General Our agency network continues to perform so the independent sales network is an important part of what we do in ABL.

Speaker Change: Delighted their performance or the performance of that channel earlier in the call.

Speaker Change: As we look at data to predict the future for US we do look at inflation, we do look at interest rates, we do look at <unk>.

Speaker Change: We look at.

Speaker Change: Kind of a few other factors and all of those collectively point towards a trend which improves in 'twenty five.

Speaker Change: It's unclear exactly what.

Speaker Change: Let me rephrase that it's unclear to me personally exactly what what opens those and I'm not sure. It's consistent based on the data that we but we have seen.

Speaker Change: Having said that net net.

Speaker Change: The sentiment is.

Speaker Change: Is remains strong in our in our agency community we.

Speaker Change: We a we talk to them.

We survey them on a regular basis.

Speaker Change: <unk>.

Speaker Change: I expect this to be a to be a kind of normal and accelerating performance overtime.

Speaker Change: Not everybody the majority expected to be improve.

Speaker Change: Improving overtime so net.

Net net this feels sort of normal not like theres going to be a floodgate that opens or anything like that but but it feels like a steady build from here.

Speaker Change: Okay, great. So it sounds like normal seasonal patterns is a very good baseline for us to focus on you would say for ABL.

Speaker Change: Yes, I think thats, the starting point and we'll see if we can outgrow that.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question coming from the line of Jeff Jeffrey Sprague with vertical research. Your line is now open.

Speaker Change: Hey, Thank you good morning, everyone.

Speaker Change: Maybe just a couple of loose ends for me a lot of ground cover.

Speaker Change: First just wanted to touch base on.

Speaker Change: On ABL operating margins, which did tick down a little bit. So maybe the larger question is in terms of what's going on with us DNA and investment.

Speaker Change: The fact that gross margin and operating margin went in different directions in the quarter.

Jeff: Sure Yeah, so Jeff.

Jeff: I talked about before we are continuing to make some investments in ABL and if you look at it sequentially.

Jeff: On a dollar basis youll see that our expenses are more consistent with where we trended in the back half of last year. So the opportunity really is to continue to manage those expenses and as sales come back as we've described a little bit more in the second half then you'll see the percent of sales start to improve but we feel good about our managed.

Jeff: Of those investments, we will invest in technology, which could identify some benefits elsewhere in the P&L, but overall, we think theres opportunity to leverage some of those fixed expenses as are the operating expenses as we come back and grow sales a little bit higher in the back half of the year.

Neal: And then Neal.

Neal: The idea of sort of the smartest most sophisticated customers using this to see.

Neal: Is there a common theme as it relates to that customer type in terms of.

I don't know if.

Neal: Youth or lack thereof of the company or a business or the vertical market or.

Neal: Some some characteristic that you'd say applies across that set of customers that youre referencing.

Jeff: Yes, Jeff I would say that.

Neal: The things that that.

We have identified about the consistency of those customers is generally that their technology forward. They manage their operations centrally and they want to get consistency across their fleet of buildings or locations. So they are looking for.

Neal: One productivity of the uses of their space.

Neal: Number one and number two theyre looking for productivity in how they are able to manage those spaces. So.

Neal: And I'll give you two specific examples so we had the disc Tech conference that we mentioned so the connect conference in Nashville at 700 systems integrators, who showed up they paid to attend.

Neal: It's a it's a combination of family reunion.

Neal: Kind of tech forward a business opportunity.

Neal: So we were there.

And one of the panels was obviously it was a it was one of our.

Neal: Some of our best customers from our what we call our building Advisory Council. So the Guy who runs facilities for Stanford University was talking about the benefits of using of using <unk> and the leverage ability that you get they get over their over their campus by the consistency and the.

Neal: And the technology that <unk> provides them.

Neal: Similarly.

Neal: If you go to <unk> website, they have a ton of case studies on <unk>, which are really interesting to read out.

Neal: Alright.

Neal: One that I found really interesting, which is Indiana University.

Neal: Basically normalized each of their each of their class room <unk>.

Interfaces, so large space of small spaces. So that there is a consistency to the end user when they walk into that space of how it operates which gives them a significant amount of additional productivity and they can manage that centrally so so.

Karen: Yes. It is all of that would not be included in our adjusted diluted earnings per share expectation correct.

Speaker Change: Alright, Thank you everyone.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of Brian <unk> with Morningstar. Your line is now open.

Speaker Change: Okay.

Speaker Change: Alright, thank you.

Speaker Change: Just wanted to ask on ABL.

Speaker Change: Specifically on the design select product portfolio and just the traction youre seeing there with customers.

Speaker Change: Yes, Brad welcome.

Speaker Change: As we have.

Speaker Change: It's really.

Speaker Change: Created to drive growth and productivity with the.

Speaker Change: The design community not surprisingly given the name.

Speaker Change: And how they can execute their their projects.

Speaker Change: Traction is is good there were.

Speaker Change: Our growth as we expect this to be a multi year three to five year kind of progression for us.

Speaker Change: Has been very strong they understand the premise they understand how it creates value for them and.

Speaker Change: They are starting to selected the gating item for US is is we're going to we're going to roll it out.

Speaker Change: That's great and then maybe for Karen just on capital allocation for the remainder of the year end.

Speaker Change: Just curious what youre thinking in terms of potential debt paydown, if any as part of that thank.

Speaker Change: Sure Yes.

Speaker Change: So first on capital allocation, let me just reiterate our priorities. So our priorities for capital allocation are to invest in our current businesses for growth.

Speaker Change: Best in M&A as you clearly see what we're doing there increase our dividend and then also to make share repurchases.

Over the next.

Speaker Change: To 18 months.

I would also highlight we did resume our share repurchase program. This quarter, we will out of the market a little bit because of the announcement of USD that we've entered.

Thank you I'll leave it there.

Yes.

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

Neil: Great. Thank you operator, thank you all for joining US. This morning, obviously, we are pleased with our performance in the first quarter.

Speaker Change: As we said in the prepared remarks.

Speaker Change: The best lighting company in North America is performing we have a clear algorithm for growth and the opportunity to continue to increase margins. We also now have a larger scale intelligent spaces business, which brings together data and control in a way that is unique to us and we believe can provide differentiated opportunities and grow.

Speaker Change: <unk> in the marketplace, we're clear on how we create value we grow net sales return profits into cash and we don't grow the balance sheet as fast. So thank you for joining us. This morning, and we look forward to talking to you again next quarter.

Speaker Change: Ladies and gentlemen that does conclude conference for today. Thank you for your participation you may now disconnect.

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