Q2 2025 Acuity Brands Inc Earnings Call

Okay.

Operator: Good morning and welcome to the Acuity Fiscal 2025 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, the company will conduct a question and answer session.

Good morning, and welcome to the acuity fiscal 2025 second quarter earnings call.

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

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

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

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

Charlotte Mclaughlin: I would now like to hand the conference over to Charlotte McLaughlin, Vice President of Investor Relations.

Speaker Change: I would now like to hand, the conference over to Charlotte Mclaughlin, Vice President of Investor Relations.

Charlotte Mclaughlin: Charlotte, please go ahead. Thank you operators.

Speaker Change: Please go ahead.

Speaker Change: Thank you operator.

Charlotte Mclaughlin: Good morning and welcome to the QT Fiscal 2025 Second Quarter Earnings Call. On the call with me this morning are Neil Ashe, our Chairman, President and Chief Executive Officer, and Karen Holcom, our Senior Vice President and Chief Financial Officer. Today's call will include updates on our strategic progress and on our fiscal 2025 second quarter performance.

Speaker Change: Good morning, and welcome to the Q2 fiscal 'twenty transcribed second quarter earnings call.

Speaker Change: Nicole we say this morning are Neil ACH, our chairman, President and Chief Executive Officer, and Terry will cover our senior Vice President and Chief Financial Officer.

Speaker Change: Today's call will include updates on our strategic progress and our physical Twitch Twitch by second quarter performance.

Charlotte Mclaughlin: There will be an opportunity for Q&A at the end of the call. As a reminder, some of our comments today may be forward-looking statements. We intend these forward-looking statements to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, as detailed on slide 2 of the accompanying presentation. Reconciliations of set non-gap financial metrics with their corresponding gap measures are available in our 2025 Second Quarter Earnings and Supplemental Presentations.

Speaker Change: There will be an opportunity for Q&A at the end of the call.

Speaker Change: As a reminder, that 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 Crimson trace five second quarter earnings release and supplemental presentation.

Charlotte Mclaughlin: Both of which are available on our investor relations website at www.investors.acuityinc.com Thank you for your interest in Acuity.

Speaker Change: Both of which are available on our Investor Relations website at Www Dot investors does acute Yang dotcom.

Speaker Change: Thank you very interestingly acuity I will now turn the call over to Neil Ash.

Neil Ashe: I will now turn the call over to Neil Ashe. Thank you, Charlotte, and thank you all for joining us today. We delivered steady performance in the second quarter of fiscal 2025. We grew net sales, expanded our adjusted operating profit and adjusted operating profit margin, and we increased our adjusted diluted earnings per share.

Neil Ash: Thank you Charlotte and thank you all for joining US today, we delivered steady performance in the second quarter of fiscal 2025, we grew net sales expanded our adjusted operating profit and adjusted operating profit margin and we increased our adjusted diluted earnings per share.

Neil Ashe: In March, we changed the name of our company from Acuity Brands to Acuity. This is an exciting step in our company's evolution. It builds on the legacy of our past while representing the scalability of our future. We are positioned for long-term growth and to create stakeholder value and compound shareholder wealth.

Neil Ash: In March we changed the name of our company from acuity brands to acuity. This is an exciting step in our company's evolution. It builds on the legacy of our past, while representing the scalability of our future. We are positioned for long term growth and to create stakeholder value compound shareholder wealth.

Neil Ashe: We have updated and aligned the names of our segments. The lighting segment will continue as Acuity Brands Lighting, or ABL, and the intelligence spaces segment has been renamed Acuity Intelligence Spaces, or AIS.

Neil Ash: Updated and align the names of our segments. The lighting segment will continue as acuity brands lighting or ABL and the intelligence space segment has been renamed acuity intelligence spaces or Aaas.

Neil Ashe: Now let's discuss ABL. We organize our business around luminaires and electronics. We've spoken a lot about our luminaires portfolio, so I want to spend some time focusing on our electronics portfolio. Our electronics portfolio is fundamental to our strategy of increasing product vitality, elevating service levels, using technology to improve and differentiate both our products and how we operate the business, and driving productivity for us and for our partners. Within electronics, we have invested in our driver portfolio to control the technology in our luminaires and developed a market-leading lighting controls platform that includes sensors, controls, and software.

Neil Ash: Now, let's discuss ABL, we organize our business around luminaries in electronics, we've spoken a lot about our luminaries portfolio. So I want to spend some time focusing on our electronics portfolio.

Neil Ash: Our electronics portfolio is fundamental to our strategy of increasing product vitality elevating service levels using technology to improve and differentiate both our products and how we operate the business and driving productivity for us and for our partners.

Neil Ash: Within electronics, we have invested in our driver portfolio to control the technology and our luminaries and developed a market leading lighting controls platform that includes sensors controls and software.

Neil Ashe: Through Eldoled and Optotronics, we produce the majority of the drivers we use in our luminaries. This allows us to improve our product vitality and drive productivity throughout our portfolio. Our nLight and SensorSwitch lighting controls platform includes stand-alone and embedded controls which can be cloud-enabled. Taken together, our electronics portfolio is a unique offering in the marketplace, extending from the drivers that power our luminaires to the sensors, controls, and software which control light in a space and connect with the cloud seamlessly through our Atrius data Let me give you an example of how all of this comes together in practice.

Through <unk> and <unk>, we produce the majority of the drivers we use in our luminaries.

Neil Ash: This allows us to improve our product vitality and drive productivity throughout our portfolio.

Neil Ash: Our enlighten and sensor switch lighting controls platform includes standalone and embedded controls, which can be cloud enabled.

Neil Ash: Taken together, our electronics portfolio is a unique offering in the marketplace extending from the drivers that power alumina errors to the sensors controls and software, which control light in our space and connect with the cloud seamlessly through our atreus data lap.

Neil Ash: Let me give you an example of how all of this comes together in practice.

Neil Ashe: This quarter, we expanded our range of Gotham Ivo products as part of our design select portfolio. We produce all the drivers for the entire Gotham Ivo product portfolio, and each product can be sold embedded with our N-Lite control. The new product launch included the Gotham Ivo Deep Regress Downlight and the Gotham Ivo Cylinder. These innovative luminaires, when combined with our nLight controls platform, can be used to optimize the space for color and light distribution. The end result is an optimized user experience with elevated aesthetics. These products are developed with our customers' needs in mind to reduce energy usage and maximize occupant comfort.

Neil Ash: This quarter, we expanded our range of Gotham Ivo products as part of our design select portfolio.

Neil Ash: We produce all of the drivers for the entire Gotham Ivo product portfolio and each product can be sold embedded with our enlink controls.

Neil Ash: The new product launch included the Gotham Ivo deep regress, Downlight and the Gotham Ivo cylinder.

Neil Ash: These innovative luminaries when combined with our Enlink controls platform can be used to optimize the space for color and light distribution.

Neil Ash: The end result is an optimized user experience with elevated aesthetics.

Neil Ash: These products are developed with our customers needs in mind to reduce energy usage and maximize occupant comfort and this quarter. Our products have continued to be recognized by multiple industry organizations for doing this.

Neil Ashe: And this quarter, our products have continued to be recognized by multiple industry organizations for doing this. We won 14 2024 Product Innovation Awards from Architectural Products Magazine that celebrate the products, systems, and materials that help architects achieve new levels of creativity or performance in their design. And seven of our products were recognized for design excellence as part of the Lit Lighting Design Awards, including Aculex for their 5-degree precision spot, which was designed for precise illumination to create dramatic effect or to highlight a visual point of interest.

Neil Ash: We won 14 2020 for product Innovation awards from architectural products magazine that celebrate the products systems and materials that help architects achieve new levels of creativity or performance in their design.

Neil Ash: And seven of our products were recognized for design excellence as part of the lift lighting design awards, including <unk> for their five degree precision spot, which was designed for precise illumination to create dramatic effect were to highlight a visual point of interest.

Neil Ashe: Now, switching to Acuity Intelligence Bases, which delivered another strong quarter of sales growth and margin performance.

Neil Ash: Now switching to acuity intelligent spaces, which delivered another strong quarter of sales growth and margin performance.

Neil Ashe: This quarter, we welcome QSC to the portfolio, advancing our mission to make spaces smarter, safer, and greener through our strategy of connecting the edge with the cloud using disruptive technology. Through Atrius, DISTEC, and QSC, we control how a built space operates and the experiences that happen within that space. We have a unique collection of disruptive technologies which are delivering distinct end-user outcomes. In the future, we can continue to add to those end-user outcomes through data interoperability. In DISTECC, we are focused on where we compete and what we can't control to expand our addressable market. As part of our geographic expansion, this quarter we continue to add systems integrator capacity in the UK and in Asia.

Neil Ash: This quarter, we welcome <unk> to the portfolio advancing our mission to make space, a smarter safer and greener through our strategy of connecting the edge with the cloud using disruptive technologies.

Neil Ash: Through atreus detect and QC, we control how are built space operates and the experiences that happened within that space.

Neil Ash: We have a unique collection of disruptive technologies, which are delivering distinct end user outcomes.

Neil Ash: In the future we can continue to add to those end user outcomes through data interoperability.

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

As part of our geographic expansion. This quarter, we continued to add systems integrator capacity in the UK and in Asia.

Neil Ash: Yes.

Neil Ashe: DISTEC Eclipse Facilities was awarded the 2025 AHR Expo Innovation Award in the Building Automation Category. Eclipse Facilities is a software solution embedded directly within DISTECC Control's Eclipse devices that provides management and control for a variety of equipment types within buildings. This quarter, we welcome QSC and we began the integration process. QSC is building the industry's most innovative full-stack AV platform that unifies data, devices, and a cloud-first architecture to deliver real-time action, experiences, and insights. And we're off to a great start. QSC continues to execute on their strategy and continues to have success in the marketplace.

Speaker Change: <unk> Eclipse facilities was awarded the 2025 HR Expo Innovation award in the building automation category.

Speaker Change: Eclipse facilities is a software solution embedded directly with their district controls eclipsed devices that provides management at control for a variety of equipment types within buildings.

Speaker Change: This quarter, we welcome QC and we began the integration process.

Speaker Change: <unk> is building the industry's most innovative full stack <unk> platform that unifies data devices, and our cloud first architecture to deliver real time action experiences and insights.

Speaker Change: And we're off to a great start.

Speaker Change: <unk> continues to execute on their strategy and continues to have success in the marketplace.

Neil Ashe: In March, I appointed Jatin Shah to lead QSC, reporting to Peter Hahn, President of Acuity Intelligence Base. John joined QSC in 2010 and has held various leadership roles since. Jatin is a leader in the industry. In addition to his role at QSC, he is also president and chairman of the board of AVIXA, the Audiovisual and Integrated Experience Association.

Speaker Change: In March I appointed John Shaw to lead <unk> reporting to Peter Hahn President of acuity intelligence spaces.

Speaker Change: John joined <unk> in 2010 and has held various leadership roles. Since then.

Speaker Change: <unk> is a leader in the industry. In addition to his role at USC. He is also president and chairman of the board of a Victor the audio visual and integrated experience Association.

Neil Ashe: John has been integral to the development and success of QSC, and I'm excited for his leadership going forward.

Speaker Change: John has been integral to the development and success of UFC and I'm excited for his leadership going forward.

Speaker Change: And finally, I want to congratulate Joe Pham, who announced his retirement earlier this year and I want to thank Joe for his contributions to both KFC and the industry over his 20 plus years with the company.

Neil Ashe: And finally, I want to congratulate Joe Pham, who announced his retirement earlier this year. And I want to thank Joe for his contributions to both QFC and the industry over his 20-plus years with us.

Neil Ashe: Now, as we look forward, there is obviously uncertainty in the marketplace, specifically with regards to tariffs. We approach tariffs as the equivalent of a supply shock, and our financial priorities are first, to manage the dollar impact, and second, to manage the margin impact. Across the company, we have taken pricing actions in response to tariffs that were in place through the end of March. As the tariff policy continues to evolve, we will continue to take necessary pricing actions, and we will work to accelerate our productivity. We will continue to focus on factors within our control and take actions as needed.

Speaker Change: Now as we look forward.

Speaker Change: There is obviously uncertainty in the marketplace, specifically with regards to tariffs.

Speaker Change: We approach tariffs as the equivalent of a supply shock and our financial priorities are first to manage the dollar impact and second to manage the margin impact.

Speaker Change: Across the company, we have taken pricing actions in response to the tariffs that were in place through the end of March as.

Speaker Change: As the tariff policy continues to evolve we will continue to take necessary pricing actions and we will work to accelerate our productivity efforts.

Speaker Change: We will continue to focus on factors within our control and take actions as needed.

Neil Ashe: In ABL, we are focused on product vitality, elevating service levels, using technology to improve and differentiate both our products and how we operate the business, and driving productivity. Our growth algorithm is clear. We will grow with the market, take share, and enter new verticals. In intelligent spaces, we control how our built space operates and the experiences that happen within that space. We have a unique collection of disruptive technologies which are delivering distinct end-user outcomes. Our focus will continue to be on growth and the opportunity to expand margin. We have demonstrated that we have dexterity in how we operate, enabling us to continue to execute in dynamic market conditions.

Speaker Change: And ABL, we are focused on product vitality elevating service levels using technology to improve and differentiate both our products and how we operate the business and driving productivity.

Speaker Change: Our growth algorithm is clear, we will grow the market take share and enter new verticals.

Speaker Change: In intelligent spaces, we control how I built space operates and the experiences that happen within that space.

Speaker Change: We have a unique collection of disruptive technologies, which are delivering distinct end user outcomes are.

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

Speaker Change: We have demonstrated that we have dexterity and how we operate enabling us to continue to execute and dynamic market conditions.

Neil Ashe: And we have demonstrated that we can deliver value to our market and drive margins in our business.

Speaker Change: And we have demonstrated that we can deliver value to our market and drive margins in our business now.

Karen Holcom: Now, I'll turn the call over to Karen, who will update you on our second quarter. Thank you, Neil, and good morning to everyone on the call. In our second quarter of fiscal 2025, we grew net sales, improved our adjusted operating profit and adjusted operating profit margin, and increased our adjusted diluted earnings per share. We closed the acquisition of QSC during our second quarter of fiscal 2025, and two months of their performance are included in our receipts. The financials also include certain purchase accounting adjustments resulting from the acquisition. For Total Acuity, we generated net sales in the second quarter of $1 billion, which was $100 million, or 11% above the prior year.

Speaker Change: Now I'll turn the call over to Karen who will update you on our second quarter performance.

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

Karen: And our second quarter of fiscal 2025, we grew net sales improved our adjusted operating profit and adjusted operating profit margin and increased our adjusted diluted earnings per share.

Karen: We closed the acquisition of <unk> during our second quarter of fiscal 2025, and two months of their performance are included in our results.

Karen: The financials also include certain purchase accounting adjustments, resulting from the acquisition.

Karen: For total acuity, we generated net sales in the second quarter of $1 billion, which was $100 million or 11% above the prior year.

Karen Holcom: This improvement was driven by the continued growth in intelligent spaces and the inclusion of two months of QSB sales. During the quarter, our adjusted operating profit was $163 million, which was up around $23 million, or 16% from last year, and we expanded our adjusted operating profit margin to 16.2%, an increase of 70 basis points from the prior year. This increase was primarily a result of the year-over-year improvement in our gross profit and the inclusion of the QSC results. Our adjusted diluted earnings per share of $3.73 increased 35 cents or 10% over the prior year.

Karen: This improvement was driven by the continued growth in intelligent spaces and the inclusion of two months of USD sales.

Karen: During the quarter, our adjusted operating profit was $163 million.

Karen: Which was up around $23 million.

Karen: Our 16% from last year, and we expanded our adjusted operating profit margin to 16, 2% an increase of 70 basis points from the prior year.

Karen: This increase was primarily a result of the year over year improvement in our gross profit and the inclusion of the <unk> results.

Karen: Our adjusted diluted earnings per share of $3 73.

Karen: Increased 35 or 10% over the prior year.

Karen Holcom: ABL delivered sales of $841 million, which is $3 million less than the prior year, primarily the result of declines in retail and corporate accounts due to general uncertainty in the wider market. This was partially offset by growth in both our independent sales channel and direct sales. We price strategically to realize the value that our products bring to the market. Since the quarter ended, we have taken pricing actions in response to the tariffs that were in place through March. We will continue to take both pricing and operational actions as the tariff policy evolves. Despite the lower sales, Adjusted Operating Profit increased $5 million to $141 million and we delivered Adjusted Operating Profit Margin of 16.8%.

Karen: ABL delivered sales of $841 million.

Karen: Which is $3 million less than the prior year, primarily the result of declines in retail and corporate accounts due to general uncertainty in the wider market. This was partially offset by growth in both our independent sales channel and direct sales channel.

Karen: We priced strategically to realize the value that our products bring to the marketplace.

Karen: Since the quarter ended we have taken pricing actions in response to the tariffs that were in place through March we will continue to take both pricing and operational actions as the tariff policy evolves.

Karen: Despite the lower sales adjusted operating profit increased $5 million to $141 million.

Karen: And we delivered adjusted operating profit margin of 16, 8%, which was up 60 basis points compared to the prior year.

Karen Holcom: which was up 60 basis points compared to the prior.

Karen Holcom: Sales in Acuity Intelligence Spaces for the second quarter were $172 million, an increase of $103 million. Atrius and Distech combined grew 12.2% during the quarter, with the remainder being the contribution from two months of QSC proportion. AIS has also taken strategic pricing actions in response to the tariffs that were in place through the end of March. These actions were directed primarily towards products sold in the U.S. Adjusted operating profit in intelligent spaces was $32 million during the quarter, with an adjusted operating profit margin of 18.7%.

Karen: Sales in acuity intelligent spaces for the second quarter were $172 million, an increase of $103 million.

Karen: Atria and discharge combined grew 12, 2% during the quarter with the remainder being the contribution from two months of <unk> performance.

Karen: <unk> has also taken strategic pricing actions in response to the tariffs that were in place through the end of March. These actions were directed primarily towards products sold in the U S.

Karen: Adjusted operating profit and intelligent spaces was $32 million during the quarter with an adjusted operating profit margin of 18, 7%.

Karen Holcom: Now turning to our cash flow performance. Fiscal year to date, we've generated $192 million of cash flow from operations. We continue to allocate capital. We closed the QSC acquisition, financing it with $600 million of additional debt and the remainder with cash on hand. And post-quarter, we repaid $100 million of the additional debt. We increased our dividend during our January shareholder meeting by 13% to $0.17 per share. And we allocated $23 million to repurchase approximately 68,000 shares.

Karen: Now turning to our cash flow performance.

Karen: Fiscal year to date, we've generated $192 million of cash flow from operations.

Karen: We continue to allocate capital effectively we closed the <unk> acquisition financing it with $600 million.

Karen: Of additional debt and the remainder with cash on hand, and post quarter, we repaid $100 million of the additional debt.

Karen: We increased our dividend during our January shareholder meeting by 13% to <unk> 17 per share.

Karen: We allocated $23 million to repurchase approximately 68000 shares.

Karen Holcom: In summary, we delivered steady performance in the fiscal second quarter of 2025. ABL continued to deliver adjusted operating profit margin improvement, while AIS delivered impressive results and began successfully integrating QSC. We allocated capital effectively, and we have positioned ourselves well to reactive changes in our market.

Karen: In summary, we delivered steady performance in the fiscal second quarter of 2025.

Karen: I will continue to deliver adjusted operating profit margin improvement, while <unk> delivered impressive results and began successfully integrating <unk>.

Karen: We allocated capital effectively and we've positioned ourselves well to react to changes in our marketplace. Thank you for joining us today I will now pass you over to the operator to take your questions.

Karen Holcom: Thank you for joining us today.

Operator: I will now pass you over to the operator to take your questions. Thank you.

Thank you.

Karen: Yes.

Christopher Snyder: Our first question comes from Chris Snyder. with Morgan Stanley. Your line is now open. Thank you. You know, maybe just starting off on the tariff announcements from yesterday. I know there hasn't been a lot of time maybe to digest it all. We'll just be interested in high level, you know, what you think it means for the company. You know, you guys are obviously highly tied to Mexico. My understanding is you're mostly USMCA compliant or largely compliant. And I think most of the competitors here are coming from Asia.

Karen: Our first question comes from Chris Snyder.

Karen: With Morgan Stanley. Your line is now open.

Speaker Change: Thank you.

Speaker Change: Just starting off on the tariff announcements from yesterday I think no there hasn't been a lot of time to digest it all.

Speaker Change: Be interested in high level what you.

Speaker Change: I think it means for the company.

Speaker Change: You guys are obviously highly tied to Mexico. My understanding is you are mostly U S. MCA compliant are largely compliant.

Speaker Change: And I think most of the competitor here coming from Asia. So just anything any bad and what it can be from a competitive positioning standpoint. Thank you.

Neil Ashe: So, just any thoughts on that and what it can mean from a competitive positioning standpoint? Thank you.

Neil Ashe: Good morning, Chris, and thank you for that softball to open the Q&A. So, as we said in the prepared remarks, our view of the tariffs is that in practice, they're effectively a supply shock. So, our focus, number one, is obviously on serving our customers. From a financial perspective, it's managing the dollar impact first and then the margin impact second. So, we have a high-performing distributed global supply chain. So, we have worked hard to get to where we are and have the dexterity that we do have. On a relative basis to our competitors, we feel confident in the position that we are in.

Speaker Change: Good morning, Chris and thank you for that softball to open to open the Q&A. So.

Speaker Change: As we as we said in the prepared remarks, our view of the tariffs is that in practice. They are effectively a supply shock. So our focus number one is obviously on serving our customers.

Speaker Change: From a financial perspective, it's managing the dollar impact first and then the margin impact second so.

Speaker Change: We have a high performing distributed global supply chain. So we are we have worked hard to to get to where we are and have the dexterity that we do have.

Speaker Change: On a relative basis to our competitors, we feel confident in the position that we're in as you point out we've got about 18% from Asia, So that as China plus other countries.

Neil Ashe: As you point out, we've got about 18% from Asia, so that is China plus other countries. About half comes from Mexico, and almost all of that is USMCA compliant, as you pointed out. So, second, though, I want to take a step back and walk through kind of how the tariffs actually work and how it will flow through us and, frankly, everybody else. As you heard yesterday, the tariffs are immediate. In other words, they will start – we will start accruing those as an expense when product starts to come across the border. It will take us a little bit of time, as both Karen and I mentioned in the remarks.

Speaker Change: About half comes from Mexico, and almost all of that is U S. MCA compliant as you as you pointed out.

Speaker Change: So.

Speaker Change: Second, though I wanted to take a step back and walk through kind of how the tariff to actually work and.

Speaker Change: And how it will flow through through us and frankly everybody else.

Speaker Change: As you heard yesterday that tariffs are immediate in other words. They will start we will start accruing those as an expense when products starts to come across the border. It will take us a little bit of time as both Karen and I mentioned in the.

Speaker Change: In the remarks, we will be taking pricing actions. So those pricing actions will take a little bit of time to be fully implemented. So so theres a lag between the time that the price the price actions take effect.

Neil Ashe: We will be taking pricing actions. So those pricing actions will take a little bit of time to be fully implemented. So there's a lag between the time that the price – the price actions take effect and the tariffs are – we are beginning to pay the tariffs. Those are balanced a little bit by what we already have in inventory in the U.S., but big picture, there's a lag between those. Finally, there's also a lag from a cash flow perspective. So those tariffs are basically due in 30 days. So we will be paying those faster than we will be collecting, ultimately, from customers.

And the and the tariffs are are we are beginning to pay the tariffs those are balanced a little bit by what we already have in inventory in the U S. But big picture there is a lag between us.

Speaker Change: Finally, there is also a lag from a cash flow perspective. So those tariffs are basically due in 30 days. So we will we will be paying those faster than that.

Speaker Change: Then we will be collecting ultimately from from customers and those tariffs then need to flow through inventory as it flows through our system and to our customers. So so big picture.

Neil Ashe: And those tariffs then need to flow through inventory as it flows through our system and to our customers. So big picture, we will be working to cover the dollar cost first, that there will be a little bit of a lag in our ability to do that just because of how the channel works. And there will be some cash flow impact as a result of the tariffs. But big picture, I want to emphasize, we have an outstanding, high-performing, diversified global supply chain. So we have the dexterity to move throughout our platform. And we will do that going forward.

Speaker Change: We we will be working to cover the dollar cost first.

Speaker Change: There will be a little bit of a lag in our ability to do that just because of how the channel works.

Speaker Change: There will be some cash flow impact as a result of the of the tariffs, but big picture.

Speaker Change: I want to emphasize we have an outstanding high performing diversified global supply chain. So we have the dexterity to to move throughout our throughout our platform and we will do that going forward.

Neil Ashe: Thanks, Neil. An incredibly helpful response.

Speaker Change: Thanks, Neal and incredibly helpful response, maybe just a follow up on the market.

Neil Ashe: Maybe just to follow up on the market, you know, ABL came in a little bit below seasonality this quarter. You know, I sense there will probably be some maybe project freezing just with all the cost uncertainty, you know, maybe difficulty quoting and bidding and just getting activity to move forward. So, are you seeing any kind of freezing up in the market? And I guess, what do you think or what do you kind of see, you know, when you look into the back half of the year, you know, as maybe there's better cost visibility in the market?

Speaker Change: ABL came in a little bit below seasonality this quarter.

Speaker Change: There probably be some maybe project freezing just with all the cost uncertainty, maybe difficulty quote quoting and bidding and just getting activity to move forward. So.

Speaker Change: Are you seeing any kind of creeping up in the market.

Speaker Change: And I guess, what do you think or what are you kind of see.

Speaker Change: When you look into the back half of the year as maybe they're better cost visibility in the market. Thank you.

Neil Ashe: Thank you. Yeah, I'll start. Karen, you add if I leave anything out. So, so big picture, we started the year with a fair amount of momentum on the lighting side. And I want to be clear now because intelligent space is a lot more impactful part of our company. So we'll keep that separate. These comments are mostly directed towards towards lighting. We had a fair amount of momentum starting the year and we had a fair amount of confidence in the in the economy in calendar 25. Which, which all of our data pointed to that. We did start to see the the the the impact of uncertainty, obviously, the marketplace abhors uncertainty.

Karen: Yeah, I'll start Karen you add if I leave anything out so.

Speaker Change: Big picture, we started the year with a fair amount of momentum on the lighting side and I want to be clear now because intelligent spaces and a lot more impactful part of our company. So we'll keep that separate and these comments are mostly directed towards towards lighting, we had a fair amount of momentum starting the year and we had a fair amount of confidence.

Speaker Change: And in the economy and calendar 'twenty five.

Speaker Change: Which.

Speaker Change: Which all of our data pointed to that.

Speaker Change: We did start to see that.

Speaker Change: There the impact of uncertainty obviously the marketplace our.

Neil Ashe: And we felt the impact of that of that uncertainty, you know, kind of later in the in the second quarter. That's balanced by, as we rolled out our price increases, the first round of price increases that are out there, the market reacted as it usually does, so the order volume reacted as it has when we've done these pricing activities in the past. So there's a balance. Yes, I think your hypothesis is correct. The market is uncertain, and there has been some – there was some impact. It was pretty obvious that there was some impact.

Speaker Change: Bores uncertainty and we felt the impact of that of that uncertainty kind of later in the in the second quarter.

Speaker Change: That's balanced by as.

Speaker Change: As we rolled out our price increases the first round of price increases that are out there.

Speaker Change: The market reacted as it usually does so the order volume reacted as it has when we've done these pricing activities in the past.

Speaker Change: So those are there is a balance yes, I think your hypothesis is correct. The market is uncertain and there is there has been some.

Speaker Change: There was some impact.

Speaker Change: It was pretty obvious that there was some impact.

Neil Ashe: I think it's too early to declare what the impact will be on demand of this next round of changes, so we'll need a little bit of time to settle before we'll be able to definitively decide what we think the demand shape is going to be like for the rest of the year. Thank you, that's really helpful.

Speaker Change: I think it's too early to declare what the impact will be on demand for of this next round of changes. So we will need a little bit of time to settle before we'll be able to definitively decide what what we think the demand shape is going to be like for the rest of the year.

Speaker Change: Thank you that's really helpful.

Ryan Merkel: Our next question comes from Ryan Merkel with William Blair. Hey, everyone. I wanted to follow up on Chris's question on tariffs, specifically as it relates to your competitive position. My reaction to the tariff last night is that it could be favorable for Acuity, just given China had the bigger increase and you're protected in Mexico. Is that the right lead, Neil? Big picture, Ryan, yes, I think that we probably are advantaged. Obviously, these tariffs are everywhere, so we'll have to dig in further with both our own portfolio as well as how it relates to others. But we're really confident.

Speaker Change: Our next question comes from Ryan Merkel with William Blair.

Ryan Merkel: Hey, everyone I wanted to follow up on Chris's question on tariffs specifically as it relates to your competitive position.

Ryan Merkel: My reaction to the tariffs last night is that it could be favorable for acuity to Kevin China had the bigger increases youre protected in Mexico.

Speaker Change: That the rate lead Neal.

Ryan Merkel: Big Picture, Ryan, Yes, I think that we probably are advantaged. Obviously these tariffs are everywhere. So so we'll have to dig in further with our.

Ryan Merkel: With our with both our own portfolio as well as how it relates to two to others, but we're really confident we structured our we've intentionally built our supply chain to have the dexterity to react to situations.

Neil Ashe: We've structured our – we've intentionally built our supply chain to have the dexterity to react to situations like this. So, big picture, the – kind of more of the normalization of the tariff amount between, say, Vietnam and Cambodia and China will impact many of the competitors that moved from China to Vietnam and Cambodia. As a point of fact, we did too, so we're just bigger and more diversified. As long as the USMCA holds, obviously, Mexico is a big advantage for us in there. And then finally, we've maintained our manufacturing footprint here in the US. So, you know, round numbers, 20% of our manufacturing happens here.

Ryan Merkel: This so.

Ryan Merkel: Big picture.

Ryan Merkel: Kind of more of the normalization of the tariff about between say, Vietnam, and Cambodia, and China will will impact many of the competitors that moved from China to Vietnam, and Cambodia as a point of fact, we did too so we're just bigger and more diversified.

Ryan Merkel: As long as the U S. MCA holds obviously Mecca.

Ryan Merkel: Mexico is a big advantage for us in there and then finally, we've maintained and our manufacturing footprint here in the U S. So.

Ryan Merkel: So round numbers, 20% of our manufacturing happens here and so we've.

Neil Ashe: And so we've maintained that and continue to drive productivity in that. So, net-net, we feel as good as we can about what our global supply chain looks like.

Ryan Merkel: <unk> maintained that and continue to drive productivity in that so net.

Ryan Merkel: Net net we feel as good as we can about about what are what our global supply chain looks like and I think on the margin, we're advantaged versus our competitors.

Neil Ashe: And I think on the margin, we're advantaged versus our competitors. Okay, got it. That's really helpful.

Okay got it that's really helpful. And then a question on gross margin I guess, it's a two parter sorry for that.

Karen Holcom: And then a question on gross margin. I guess it's a two-parter. Sorry for that. It looked like gross margins were better than normal seasonality this quarter. Can you just talk about why that was? And then you mentioned there could be a lag in terms of passing on price. I would just love to get any more color there. You know, is it going to be significant, or do you think that that's something that you can manage? Yeah, Ryan, I'll start, and then Neil can add on about the tariff impact. So when you look at the underlying business, the gross margin continues to be strong, and this really is a factor of a couple things.

Ryan Merkel: It looked like gross margins were better than normal seasonality. This quarter can you just talk about why that was and then you mentioned there could be a lag in terms of passing on price.

Ryan Merkel: I would just love to get any more color. There is it going to be significant or do you think that that's something that you can manage.

Speaker Change: Yes, Ryan I'll start and then Neill can add on about the tariff impact. So when you look at the underlying business. The gross margin continues to be strong and this really is a factor of a couple of things first that highlight that AI assets continuing to be a bigger part of the company and their gross margins are more favorable.

Karen Holcom: First, I'd highlight that AIS is continuing to be a bigger part of the company, and their gross margins are more favorable. And the impact of the acquisition of QSC had a favorable impact on gross margins. The other thing I'd highlight is the execution of the strategy at ABL around product vitality, service, technology, and productivity, that's continuing to have an impact. So the products like you saw today on the presentation with Ivo, they're going to continue to drive more value for us, our channel partners and our customers, and have lower input costs. So it's really both of those things, the greater portion of AIS contributing favorably as well as the underlying performance of the product.

Ryan Merkel: And the impact of the acquisition of <unk> had a favorable impact on gross margins.

Ryan Merkel: The other thing I would highlight is the execution of the strategy at ABL around product vitality service technology and productivity that is continuing to have an impact. So the products like you saw today on the presentation with Ivo Theyre going to continue to drive more value for us our channel partners and our customers and have lower input.

Ryan Merkel: Cost so it's really both of those things that greater portion of Aif contributing favorably as well as the underlying performance of the lighting business.

Neil Ashe: Yeah, Ryan, to pick up on my comment on the lag. So we put a price increase in, it gets quoted, it gets bought, and ultimately it gets shipped. That's the gap that we're talking about. So during the pandemic, that ranged from 30 to 90 days, based on when we were doing price increases there. So it's tough to predict exactly. The second, but it was in that order of magnitude. So, you know, it's interesting, but not, you know, not terribly determinative. The second thing that I would just make sure everyone understands is when we say we're focused on dollars, if there's $100 of impact, we're going to pass on at least $100 of price.

Speaker Change: Yes, Ryan to pick up on my comment on the lag so we put a price increase in.

Ryan Merkel: It gets quoted it gets bought.

Ryan Merkel: And ultimately it gets shipped that's the gap that we're talking about so.

Ryan Merkel: During the pandemic that ranged from 30 to 90 days.

Ryan Merkel: Based on when we were doing price increases there.

Ryan Merkel: As so so it's.

Ryan Merkel: It's tough to predict exactly the second but it was in that order of magnitude. So.

Ryan Merkel: It's interesting, but but not not terribly determinative. The second thing that I would just make sure everyone. Understands is we'll when we say we're focused on dollars if theres $100 of impact we're going to pass on at least $100 a price.

Neil Ashe: And let's ignore the impact to demand for a second, but we will do, you know, we will at least pass on $100 of price. The impact then would be mildly dilutive to the percentage margins in the periods in which we are cycling through this. So that's, you know, that's why we refer to it as a supply shock. And we experienced the same thing during kind of the rapid inflation periods of the pandemic. But as Karen pointed out, the quality of our underlying business, both businesses, is incredibly high. So the performance on the lighting business is wildly different than any other company in the lighting industry anywhere else in the world.

Ryan Merkel: And let's ignore the impact to demand for a second but we will do we will at least pass on $100 of price.

Ryan Merkel: The impact then would be mildly dilutive to the percentage margins in the periods in which we are cycling through this.

So thats.

That's why we referred to it as a supply shock and we experienced the same thing during kind of the rapid inflation periods of the pandemic.

Ryan Merkel: But as Karen pointed out this.

Ryan Merkel: The quality of our underlying business is both businesses is incredibly high so the performance on the lighting business is wildly different than any other company in the lighting industry anywhere else in the world. So the strategy of driving product vitality service technology and productivity has led.

Neil Ashe: So the strategy of driving product vitality, service, technology, and productivity has led to the expanding margins. And while we'll take a pause while we digest these tariffs, we will continue on that path going forward, and we're confident of what we can do with that. Second is that we've built a very interesting data and controls business inside of Acuity over the last five years, both inside of ABL with our electronics business, as well as intelligent spaces. Those are highly attractive businesses with outstanding margin structure and growth opportunities.

Ryan Merkel: <unk> has led to the the expanding margins and while we will take a pause while we digest. These tariffs we will continue on that path going forward and we're confident of what we can do with that.

Ryan Merkel: Second is that we've built a very interesting data and controls business inside of acuity over the last five years, both inside of ABL with our electronics business as well as intelligent spaces. Those are highly attractive businesses with outstanding margin structure and.

Ryan Merkel: And growth opportunity. So once we get past this kind of a bump in the road, we will start to see we'll start to see that performance shine through again.

Ryan Merkel: So once we get past this kind of bump in the road, we'll start to see that performance shine through again. Got it. Thanks so much. Thank you.

Ryan Merkel: Got it thanks, so much.

Ryan Merkel: Thank you.

Joe O'Day: Our next question comes from Joe O'Day at Wells Fargo.

Speaker Change: Our next question comes from Joe O'dea at Wells Fargo.

Joe O'Day: Hi, good morning. Just a clarification on guidance. Didn't hear anything. I haven't seen the slides. Just how are you approaching that? Sure, Joe. You know, we've really been clear about our performance to date. So where we are, we're half of our fiscal year, and we've talked about what we know for the remainder of the fiscal year. As a reminder, we did modify our guidance in Q1 to reflect the addition of QSC, and so that's where we are, and we're just going to continue to execute accordingly for the remainder of the fiscal year. Okay, and so, given all the uncertainty, it's reasonable to assume that, you know, those ranges are still intact for your expectation.

Speaker Change: Hi, good morning.

Speaker Change: Just a clarification on guidance I didn't hear anything you haven't seen the slides just how are you approaching that.

Speaker Change: Sure Joe.

Speaker Change: We've really been clear about our performance to date, so where we are where half of our fiscal year and we've talked about what we know for the remainder of the fiscal year as.

Speaker Change: As a reminder, we did modify our guidance in Q1 to reflect the addition of <unk> and so that's where we are and we're just going to continue to execute accordingly for the remainder of the year.

Speaker Change: Okay and so.

Speaker Change: Given all the uncertainty it's reasonable to assume that those ranges are still intact for your expectations.

Joe O'Day: No change. Okay, cool. How do you do the pricing on this when we think about a 50% tariff? Is that... We take those products and we're just going to go raise prices by 25% to offset it, or you look across the portfolio, and I think in total it would mean pricing would have to be up about 5% for the total company to offset something like this. But just curious in terms of how you approach this, and then should we be thinking that these announcements are coming in the next week because you're operating against an April 5th or April 9th kind of timeline?

Speaker Change: No change.

Speaker Change: Okay cool.

Speaker Change: How do you do.

Speaker Change: The pricing on this when we think about.

50%.

Speaker Change: Is that.

Speaker Change: We take those products and we're.

Speaker Change: Just kind of go raise prices by 25% to offset it.

Speaker Change: Or you look across the portfolio and I think in total it would mean pricing would have to be up about 5% for the total company to offset something like that.

Speaker Change: But just curious in terms of how you how you approach. This and then should we be thinking that these announcements are coming in the next week because youre operating against in April 5th or April by kind of timeline.

Karen Holcom: Yeah, so we've been very clear, clear, excuse me, as part of the strategy, we have transitioned to strategic pricing and strategic pricing for us means that we, we charge for the value that our products deliver in the marketplace. And we are mindful of where they are positioned competitively. So on the lighting side, as we look forward, there, we have a pricing strategy for contractors, contractors select, we have a pricing strategy for design select, and we have a pricing strategy for made to order. So we will look to, to strategically evaluate where we want to put that price to, to cover any of the additional costs, increases in cost of goods sold as a result of the tariff.

Speaker Change: Yes, so we've been very clear clear excuse me as part of the strategy, we have transitioned to strategic pricing strategic pricing for us means that we we charge for the value that our products deliver in the marketplace.

Speaker Change: And we are mindful of where they are positioned competitively so on the lighting side as we look forward.

Speaker Change: We have a pricing strategy for contractors contractor select we have our pricing strategy for design select and we have a pricing strategy for made to order. So we will look to strategically evaluate where we want to put that price too to cover.

Speaker Change: Any of the additional cost increases in cost of goods sold as a result of the tariffs.

Karen Holcom: So we're trying to play offense a little bit through this process as well with our strategic pricing. As Karen mentioned, we have introduced pricing actions that were in place through March 31st. Obviously, we all learned the same time you did yesterday about what the new tariffs are, and we will take appropriate actions very quickly. And then just one on the QSC margin, based on some of the details in the Q, I don't know if we're doing this right, but it looks like that was like a 17.4% adjusted op margin. Is that right? And I think previously, like, you know, based on acquisition math, it was coming in at about 15%.

Speaker Change: So we're trying to play offense.

Speaker Change: A little bit through this process as well with our with our strategic pricing.

Speaker Change: As Karen mentioned, we have we have introduced pricing actions that were in place through March 31.

Speaker Change: Obviously, we all learn at the same time, you did yesterday about what these actions what the tariffs the new tariffs are and we will take appropriate actions very quickly.

Speaker Change: And then just one on the <unk> margin.

Speaker Change: Based on some of the details in the Q I don't know if we're doing this right, but it looks like that was like a 17, 4% adjusted op margin.

Speaker Change: Is that right and I think previously like based on acquisition math It was coming in at about 15%. So so anything that you did in a short period of time.

Karen Holcom: So anything that you did in a short period of time on those margins. I think Joe directionally, that's pretty close. When we look at QSC, it is highly aligned to the, you know, Atrius Distech business, so the legacy AIS business, is pretty similar in terms of growth. It's similar in terms of margin profile, not quite as strong yet, but it's pretty close. So I think you're directionally there. Thanks a lot. Yeah, Joe, we were clear that we're excited about the opportunities here. We'll focus on growth, but we do believe that there's margin and opportunity going forward.

Speaker Change: On those margins.

Speaker Change: I think Joe Directionally Thats pretty close when we look at <unk>. It is highly aligned to the.

Speaker Change: Hey, <unk>.

Speaker Change: <unk> business or the legacy Aif business, it's pretty similar in terms of of growth. It's similar in terms of margin profile not quite as strong, but it's pretty close I think you're directionally there.

Speaker Change: Great. Thanks, a lot Joe.

Speaker Change: Yes, Joe we were clear.

Speaker Change: Where we're excited about the opportunities here, we will focus on growth, but we do believe that there's margin opportunity going forward.

Karen Holcom: Yeah, it just seemed to come through a little faster than we anticipated. So good story there. Thank you.

Speaker Change: Yes, just can't seem to come through a little faster than we than we anticipated. So good story there. Thank you.

Speaker Change: Sure.

Brian Lee: Our next question comes from Brian Lee at Goldman Sachs. Hey, everyone. Good morning. Thanks for taking questions. I know a lot on tariffs. I'll just throw one more in.

Speaker Change: Our next question comes from Brian Lee at Goldman Sachs.

Brian Lee: Hey, everyone. Good morning, Thanks for taking the questions.

Speaker Change: No a lot on tariffs I'll just throw one more in.

Speaker Change: I mean, the ink isn't even dry yet so I know, it's super early days, but what are your thoughts around kind of.

Neil Ashe: I mean, the ink isn't even dry yet, so I know it's super early days, but what are your thoughts around kind of, you know, Neil, you mentioned with the tariffs that you already priced in through the end of March, you saw kind of the customer behavior that you would expect. If you could just elaborate on that a bit. And then with these tariffs potentially just being a point of negotiation, would you anticipate, again, I know it's early days, you probably don't even have customer feedback, but is there the risk that, you know, customers kind of wait on placing orders, especially for kind of longer lead time projects in the anticipation that maybe, you know, with certain countries where, you know, the impact is going to be lessened over time?

Neil you mentioned with the <unk>.

Speaker Change: The tariffs that you've already priced into the end of March you saw.

Speaker Change: Kind of the customer behavior that you would expect if you could just elaborate on that a bit and then.

Speaker Change: With these tariffs potentially just being.

Speaker Change: A point of negotiation would you anticipate again I know it's early days you probably don't even have customer feedback, but is there the risk that.

Speaker Change: Customers kind of weighed on placing orders, especially for kind of longer lead time projects.

Speaker Change: In the anticipation that maybe tariffs do come down or there is some negotiations with certain countries, where the impact is going to be lessened over time.

Neil Ashe: Yeah, Brian, so let me take the let me take what is what is normal customer behavior that I alluded to. So every time we put a price increase, it basically, it basically shakes loose some of the activity that would have come over the course of the last of the next call it month or two. So, so we'll see an accelerated order rate for for people that are ready to pull the trigger on a project that they're in the midst of so that they can ensure that they lock in a cost. And they may take that sooner than they wanted it, but they'll do that in order to to lock in that price.

Speaker Change: Yeah, Brian So let me take the let me take what is what is normal customer behavior that I alluded to so every time, we put a price increase it basically.

Speaker Change: It basically shakes loose some of the activity that would have come over the course of the last of the next call it month or two so.

Speaker Change: So we will see an accelerated order rate for people that are ready to pull the trigger on a project that they are in the midst of so that they can ensure that they lock in our cost.

Speaker Change: And they may take that sooner than they wanted it but they will do that in order to lock in that price.

Neil Ashe: That's what we saw. That's about what we saw as it relates to the price increases that we have already put in place. The impact of that would be, we believe, contained inside of our fiscal third quarter. So, just to give you kind of orders of magnitude. Then, as we look forward, none of us know whether these are permanent or temporary or up for negotiation or not up for negotiation. So we have to operate based on what we know. So our policy here is we focus on what the administration actually does, and as a point of fact, they've implemented these tariffs.

Speaker Change: That's what we saw that's about what we saw as it relates to the price increases that we have already put in place.

Speaker Change: The impact of that would be we believe contained inside of our fiscal third quarter. So just to give you kind of orders of magnitude.

Speaker Change: Yes.

Speaker Change: Then.

Speaker Change: As we look forward.

Speaker Change: None of US know, what whether these are permanent or temporary or up for negotiation or not up for negotiation. So we have to operate based on what we know so our our policy here is we focus on what the what the administration actually does and as a point of fact, they've implemented these <unk>.

Neil Ashe: So we're reacting to these tariffs accordingly. The second thing that I would say then is, obviously, that's going to create uncertainty in the marketplace for people that are dependent on these orders over the next period. So we'll figure out what that's going to be. It may be small. That's why we highlighted that there was normal order activity related to the first price increase. And then anecdotally, I would tell you on the customer front, obviously, we haven't had time to talk to customers, but we were speaking to one of the major distributors yesterday, and they were sharing with us that they had 120 different price letters, price increase letters that they were processing currently.

Speaker Change: So we're reacting to these tariffs.

Speaker Change: As.

Speaker Change: Accordingly.

Speaker Change: The second thing that I would say that is.

Speaker Change: Obviously thats going to create uncertainty in the marketplace for for people that are dependent on kind of these orders over the next period. So we'll figure out what that's going to be it may it may be small that's why we highlighted that there was normal order activity.

Speaker Change: Related to the to the first price increase.

Speaker Change: And then anecdotally I would tell you on the customer front, obviously, we haven't had time to talk to customers, but we were speaking to one of the major distributors yesterday and they were sharing with us that they had 120 different price letters price increase letters that they were processing. Currently so obviously the effects of this are not isolated to our company.

Brian Lee: So, obviously, the effects of this are not isolated to our company. Awesome, appreciate the call there.

Speaker Change: Awesome I appreciate the color and just.

Neil Ashe: Just maybe a follow-up on the QSC integration again that's you're two months into it but can you kind of give us a sense of what sort of progress you're seeing any visibility into either cost or product synergies that you might have on the horizon whether you know later later this year or into next year. Thank you. Yeah, so, so, taking a step back, we, we are enthusiastic about what we are building with intelligent spaces, smarter, safer, and greener, connecting the edge with the cloud through disruptive technologies, Atrius, DisTech, and QSC. QSC fits really, really well with us from a strategy perspective, from a product perspective, and from a culture perspective.

Speaker Change: Maybe a follow up on the <unk> integration again.

Speaker Change: Two months into it but can you give us a sense of what sort of progress you're seeing any.

Speaker Change: Visibility to either costs or product synergies that you might have on the horizon. Whether later later this year or into next year. Thank you.

Speaker Change: Yes so.

Speaker Change: Taking a step back we are enthusiastic about what we are building with intelligent spaces.

Speaker Change: Artur safer and greener connecting the edge of the cloud through disruptive technologies, <unk> and <unk> fits really really well with us from a strategy perspective from a product perspective and from a culture perspective.

Neil Ashe: Each one of those things we knew going in, but they, and each one of those have exceeded our expectations so far. So, so, as Karen mentioned on the, in kind of the discussion of margins, we've, we've essentially already completed or mostly completed the enablement function integration that's giving us opportunities on margin. They're continuing to perform really well in the marketplace from a, from a consistent business perspective. The feedback they're getting is it's great to be part of a bigger platform, and they're excited about the opportunity to be part of a bigger platform. We've brought together the, the commercial and product and engineering teams to start to brainstorm end user outcomes, which, which can be affected.

Speaker Change: Each one of those things, we knew going in but they and each one of those have exceeded our expectations. So far so.

Karen: So as Karen.

Karen: Mentioned on the in.

Kind of a discussion of margins, we've we've essentially already completed or mostly completed the enablement function integration, that's giving us opportunities on margin there.

Karen: We're continuing to perform really well in the marketplace from a from a consistent business perspective.

Karen: The feedback they're getting is it's great to be part of a bigger platform and they're excited about the opportunity to be part of a bigger platform.

Karen: We've brought together the commercial and product and engineering teams to start to brainstorm end user outcomes, which which can be affected.

Neil Ashe: As we said, when we, we, we talked about, we are really confident about those, and also, we don't want to rush those. So, we want those to be pulled by the marketplace as opposed to us jamming through. So, so on the arc of time, you know, we have a run rate billion dollar ish data and controls business now and intelligence business. Spaces that has an opportunity to to continue to to grow at the rates. It's it's growing at and the opportunity to to continue to expand margin. Alright, thanks a lot. All the best. Bye.

Karen: As we said when we talked about we are really confident about those and also we don't want to rush. Those so we want those to be pulled by the marketplace as opposed to us jamming through so.

Karen: So on the arc of time, we have a run rate of $1 billion ish data and controls business Alan intelligence basis that has an opportunity to.

Karen: Continue to grow at the rates, it's growing at and the opportunity to to continue to expand margins.

Speaker Change: Alright, Thanks, a lot best of luck.

Tim Wojs: Our next question comes from Tim Wojs at Bayer. Tim, your line is now open. Can everybody hear me? Yes, we can. Morning, Tim. Hey, sorry about that. So, last thing to cover, just two kind of clarification questions for me. So, I guess the first is, and maybe I missed it, can you just quantify the price that you took? before the tariff announcements yesterday, just in terms of percentages.

Tim Woes: Our next question comes from Tim woes at Baird.

Speaker Change: Tim Your line is now open.

Speaker Change: Can everybody hear me.

Speaker Change: Yes, again, good morning, Tim.

Speaker Change: Sorry about that.

So lots of income or just just to kind of clarification questions from me. So I guess the first is <unk>.

Speaker Change: And maybe I missed it can you just quantify the price that you took.

Speaker Change: For the tariff announcements yesterday, just in terms of percentages.

Karen Holcom: Yeah, so we're not going to give the percentages, Tim, just for competitive reasons. But, you know, kind of think single, lower, lower middle single digit. Okay, okay.

Tim Woes: Yes, so we're not going to give the percentages Tim just for competitive reasons.

Speaker Change: But kind of think single lower lower middle single digits.

Speaker Change: Okay, Okay, and then I guess from a capital allocation perspective.

Karen Holcom: And then I guess from a capital kind of allocation perspective. You know, just with the leverage that you kind of took, you know, for QSC, how do you think about deploying cash flow over the next, call it 12 to 18 months? Are buybacks still kind of in play? Do you kind of prioritize debt pay down? Just how are you kind of thinking about? the cash flow kind of utilization over the next year, year and a half.

Just with the leverage that you kind of took.

Speaker Change: <unk>.

Speaker Change: Do you think about deploying cash flow over the next call. It 12 to 18 months.

Speaker Change: Our buyback still kind of in play.

Speaker Change: Kind of prioritize debt Paydown, just just hard to kind of thinking about.

Speaker Change: The cash flow kind of utilization over the next year year and a half.

Karen Holcom: Yeah, so let's focus on the obvious first. We are highly cash generative, and we've got a tremendous amount of financial capacity. So the performance of our business will continue to drive that level of cash generation. And we've been very clear and consistent about what our priorities are. We want to grow our current businesses. We want to grow through M&A. We have increased our dividend, and we will repurchase shares sometimes more than – sometimes a lot, sometimes a little. As we look at kind of where we are right now from a capacity perspective, our capacity remains very, very high.

Speaker Change: Yes so.

Speaker Change: Let's focus on the obvious first we are highly cash generative and we've got a tremendous amount of financial capacity. So the performance of our business will continue to to drive to drive that level of cash generation and we've been very clear and consistent about what our priorities are we want to grow our current business.

Speaker Change: As we want to grow through M&A, we have increased our dividend and we will we will repurchase shares sometimes more than sometimes a lot sometimes a little.

Speaker Change: As we look at kind of where we are right now from a capacity perspective, our capacities remains very very high. So so we're positioned well for whatever happens now if.

Karen Holcom: So we're positioned well for whatever happens now. If there's dislocation in the marketplace, which makes acquisitions more attractive, we will evaluate those. We have a healthy pipeline. If there's dislocation in the market that affects acuity shares, we can – we have the capacity to be aggressive there. And finally, we have the ability to do all of the above. So I feel really good about where we're positioned right now from a capital perspective. All options are available to us. Okay. Okay, great. Thanks a lot for the color.

Speaker Change: If there is dislocation in the marketplace, which makes acquisitions more attractive we will evaluate those we have a healthy pipeline. If there's dislocation in the market that effects acuity shares. We can we have the capacity to be aggressive there.

Speaker Change: And finally, we have the ability to do all of the above so so I feel really good about where we're positioned right now from a from a capital perspective.

Speaker Change: All options are available to us.

Speaker Change: Okay. Okay, great. Thanks, a lot for the color.

Christopher Glynn: Our next question comes from Christopher Glynn at Oppenheimer. Thanks. Good morning, everyone.

Speaker Change: Our next question comes from Christopher Glynn at Oppenheimer.

Christopher Glynn: Thanks, Good morning, everyone. Just following up on Tim's question, there with all options being available.

Neil Ashe: Just following up on Tim's question there, with all options being available, being a clear punchline there, I just want to talk about how is the pipeline in terms of scope and breadth of activity? And are you in the market for, you know, another QSC? A, does it exist? B, you know, do you have enough on your plate right now? Or would something like that be, you know, within the square of reasonable expectations over the next 12 to 24 months, call it? Yeah, it's a good question. Obviously, with the financial capacity is not an issue. So as we've, as we've identified, second, our operating capacity is quickly not becoming an issue.

Christopher Glynn: Clear punch line there just.

Christopher Glynn: Wanted to talk about.

Christopher Glynn: How is the pipeline.

Christopher Glynn: In terms of.

Christopher Glynn: Scope and breadth of activity and are you in the market for.

Christopher Glynn: Another <unk> <unk> does it exist b.

Christopher Glynn: Do you have enough on your plate right now or something like that be.

Christopher Glynn: Within the square of reasonable expectations over the next 12 to 24 months call. It.

Christopher Glynn: Yes, it's a good question.

Christopher Glynn: Obviously with the financial capacity is not an issue. So as we've identified second our operating capacity as quickly not becoming an issue. So the company has learned a lot through the integration of <unk> and I am confident in our ability to to continue to execute on opportunities like <unk> going forward.

Neil Ashe: So the company has learned a lot through the integration of QSC. And I'm confident in our ability to, to continue to execute on opportunities like QSC going forward. As in the, you know, kind of next six to 12 months, there is not anything of the magnitude of QSC in our, in the, in the pipeline, the short term pipeline like that. But we do have attractive opportunities in that short term pipeline that we will continue to execute against. To the qualitative question, are we looking for another QSC? And do they exist? The answer is yes, and yes.

Christopher Glynn: As in that kind of the next six to 12 months there is not anything of the magnitude of <unk> NR.

Christopher Glynn: In the pipeline in the short term pipeline like that but we do have attractive opportunities in that short term pipeline that we will continue to execute against.

Christopher Glynn: To the qualitative question are we looking for another <unk> do they exist. The answer is yes, and yes, and we are we're confident that we can continue to do.

Neil Ashe: And we are, we're confident that we can continue to do to add attractive companies like that to the portfolio that fit our strategy and, and are more valuable as a result of being part of the portfolio. So, so in summary, we have plenty of capacity.

Christopher Glynn: To add attractive companies like that to the portfolio that fit our strategy and and.

Christopher Glynn: And our more valuable as a result of being part of the portfolio. So.

Christopher Glynn: In summary, we have plenty of capacity. The short term pipeline does not include an acquisition of the scale of USC, but longer term, we will for sure be looking for more of those acquisitions.

Neil Ashe: The short term pipeline does not include an acquisition of the scale of QSC, but longer term, we will for sure be looking for more of those acquisitions. Okay, thanks.

Christopher Glynn: Okay. Thanks.

Neil Ashe: And I also have kind of a pan out question. You know, Acuity's had, in its long history, some years of accelerated performance and competitive differentiation. I think as you describe every quarter right now, it's a different shade of drivers right now to be sustainable. But you know, competitors see what you're doing. You have some resource competitors. You know, not that it's easy. You've brought a lot of diverse talent in, and, you know, tough to replicate, particularly with the benefits of scale. But I'm curious if you're seeing any competitors start to demonstrate times of raising their game as well.

Christopher Glynn: Also have kind of a pan of question you know acuity has had.

Christopher Glynn: And its long history, some years of accelerated performance and competitive differentiation.

Christopher Glynn: I think as you describe every quarter right now with the different shade of drivers right now to be.

Christopher Glynn: Sustainable, but competitors see what youre doing some resource competitors.

Christopher Glynn: Not that its easy you've brought a lot of diverse talent.

Christopher Glynn: And.

Christopher Glynn: Tough tough to replicate particularly with the benefits of scale, but im curious if youre seeing any competitors start to demonstrate times of raising their game as well.

Neil Ashe: Yeah, I mean, I think competitors are absolutely reacting. And I, you know, it's funny, I'm looking at Karen, because in our QBR, we made this exact point to the to the lighting team, it's like, we can't expect that we are going to continually beat up on competitors, and they're not going to do anything in reaction. So the answer is, yes, they are reacting. And, and that is, that is generally on the margin, as opposed to, as opposed to kind of straight on the core. I'm, I'm not aware of a company that can execute our strategy the way we are executing it.

Christopher Glynn: Yes, I mean, I think competitors are absolutely reacting and I.

Christopher Glynn: It's funny I'm looking at Karen because in our QBR. We made this exact point to the to the lighting team. It's like we can expect that we're going to continually beat up by competitors and theyre not going to do anything in reaction. So the answer is yes, they are reacting and.

Christopher Glynn: And that is that as generally on the margin as opposed to as opposed to kind of straight on the core I'm I'm not aware of a company that can execute our strategy. The way we are executing it so.

Neil Ashe: So the, the, our electronics portfolio is central to the differentiation of the lighting business in, in the marketplace. So the ability to control from the driver to the sensor to the control to the software, and then with Atrius Data Lab to the cloud, I believe is unique in the marketplace. The, that creates our ability to deliver solutions that others can't in the marketplace. So we may, we may intentionally lose on the edge to a super low price competitor that is low featured, but, but we will continue to win over time with the solutions that matter in the marketplace.

Christopher Glynn: The our electronics portfolio is central to the differentiation of the lighting business in in the marketplace. So the ability to control from the driver to the sensor to the control to the software and then with Atria data lab to the cloud I believe is unique in the marketplace.

Christopher Glynn: That creates our ability to deliver solutions that others can't and the marketplace. So we may.

Christopher Glynn: May intentionally lose on the edge to a super low price competitor that is low featured but but we will continue to win over time with the solutions that matter in the marketplace.

Neil Ashe: And then big picture, the whole company is basically a data and controls company with a luminaire business as opposed to a luminaire business with a with a small electronics business that is unique in the market.

Christopher Glynn: And then big picture the whole company is basically a data and controls company with Illumina air business as opposed to illuminate our business with a with a small electronics business that is unique in the marketplace.

Neil Ashe: Yeah, thanks for that frame up, Neil.

Speaker Change: Yes, thanks for that frame up Neil.

Jeffrey Sprague: Our next question comes from Jeffrey Sprague at Vertical Research.

Speaker Change: Our next question comes from Jeffrey Sprague at vertical research.

Neil Ashe: Good morning, everyone. Hey, a lot of ground covered. I just want to come back to kind of the, you know, the early read on maybe demand destruction or, you know, customer behavior. You know, I mean, given lights are, you know, kind of late in the project, right, I assume kind of larger projects continue to move forward, at least up to this point. So this weakness you're seeing, is it more smaller reno projects or, in fact, larger projects are slowing down. That sort of dynamic. Is there any color you could show there? Jeff, I think the most obvious answer or observation we could make in the immediate term, so think, you know, kind of second quarter and what we're executing on now is it's all just timing.

Jeffrey Sprague: Good morning, everyone, Hey, a lot of ground covered I just wanted to come back to kind of the.

Jeffrey Sprague: Early read on maybe demand destruction or customer behavior.

Jeffrey Sprague: Neil I mean, given lights are kind of late in the project and assume kind of larger projects continue to move forward at least up to this point. So this weakness youre seeing is it more smaller reno projects or in fact larger projects are slowing down.

Jeffrey Sprague: That sort of dynamic is there any color you could share there.

Jeffrey Sprague: Jeff I think the most obvious answer or our observation we could make in the in the immediate term so think kind of.

Jeffrey Sprague: Second quarter and what we're executing on now is it's all just timing.

Neil Ashe: So, you know, people may have slowed some orders down in the second quarter to try and get a lay of the land, and then they accelerated those orders once they realized we were increasing prices. That's the simplest explanation of kind of the up and down. As we look forward, we'll have to see how – what the total impact is on everybody, and then as a result, the decisions that people take on demand going forward. So, you know, we're more in steady as she goes mode right now. So we're confident we can execute in a differentiated manner.

Jeffrey Sprague: No.

Jeffrey Sprague: People may have slowed some orders down in the second quarter or two to try and get a lay of the land and then they accelerated those orders once they realized we were increasing prices. That's the simplest explanation of kind of the the up and down.

Jeffrey Sprague: As we look forward, we will have to see how what the what the total impact is on on everybody and then as a result of decisions that people take on on demand going forward. So.

Jeffrey Sprague: We're more than steady as she goes mode right now.

Jeffrey Sprague: So we're.

Jeffrey Sprague: We're confident we can execute in a differentiated manner. So.

Neil Ashe: So I think it's too early to tell what the impact will be on demand. Right, and you were quite clear about sort of the normal lag between when you raise price and when you get it and how it's got to work through inventory and everything else. But I'm wondering, can you shorten that window? You know, and not let customers, for lack of a better term, quote, unquote, over order and get in front of, you know, kind of the cost bow wave to, you know, kind of accelerate the catch up on your end. Jeff, you can feel confident that we are doing everything in our power to do that.

Jeffrey Sprague: I think it's too early to tell what the impact will be on demand.

Great and you were quite clear about sort of the normal lag between when you raised price and when you get it and how it's got to work through inventory and everything else, but I'm wondering can you shorten that window.

Jeffrey Sprague: And not let customers for lack of a better term quote unquote over order and get in front of kind of the cost.

Jeffrey Sprague: Kind of accelerate the catch up on year end.

Jeffrey Sprague: Jeff you can feel confident that we are doing everything in our power to do that.

Operator: Great, thank you. Thank you, and I'm showing no further questions in queue at this time.

Jeffrey Sprague: Great. Thank you.

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

Neil Ashe: I'd like to turn the call back to Neil Ashe for any closing remarks. Well, first of all, thank you all for joining us this morning. And it's a pleasure to be the first major company to report after 4 o'clock news yesterday afternoon. So, in that context, I want to take a step back and say we are incredibly proud of the company that we are building here, and we will continue that path. We have a market-leading lighting and lighting controls business with an outstanding electronics portfolio, which is differentiated in the marketplace and is delivering differentiated results in the marketplace.

Neil Ash: Well first of all thank you all for joining US this morning, and it's a pleasure to be the first major company to two.

Neil Ash: To report after four o'clock news yesterday afternoon. So in that context I wanted to take a step back and say we are incredibly proud of the company that we are building here and we will continue that path, we have a market leading lighting lighting controls business with an outstanding electronics portfolio, which is differentiated in the marketplace and.

Neil Ash: As delivered delivering differentiated results in the marketplace.

Neil Ashe: We have an outstanding intelligent spaces business with a different theory of the case that we can combine the data of a built space and deliver outcomes for end users and for the people that provide that space to those end users that we're really confident about. And taken together, we have a super high quality business that is clear with a demonstrated ability, a strategy is clear with a demonstrated ability to execute in multiple different marketplaces. And we're going to go out and do that and we will create differentiated value as a result. So thank you for spending time with us this morning and we look forward to catching up with you next quarter.

Neil Ash: We have an outstanding intelligence spaces business with.

Neil Ash: With a different theory of the case that we can combine the data of a built space and deliver outcomes for end users and for the people that provide that space to those end users that we're really confident about and taken together we have a super high quality business that is clear with a demonstrated ability strat.

Neil Ash: <unk> is clear with a demonstrated ability to execute and multiple different marketplaces, and we're going to go out and do that and we will create differentiated value as a result, so thank you for spending time with US. This morning, and we look forward to catching up with you next quarter.

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

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

Neil Ash: Okay.

Neil Ash: Okay.

Neil Ash: Okay.

Neil Ash: Yes.

Neil Ash: Yes.

Neil Ash: Okay.

Neil Ash: Yes.

Neil Ash: Okay.