Q4 2026 Acuity Inc Earnings Call

October 1, 2026

Speaker #1: Good morning, and welcome to the ACUITY fiscal 2026 fourth quarter and full-year earnings call. At this time, all participants are in a listen-only mode.

Operator: Good morning, and welcome to the Acuity Fiscal 2026 Q4 and full year earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, the company will conduct a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Charlotte McLaughlin, Vice President of Investor Relations. Charlotte, please go ahead.

Speaker #1: After the speaker's presentation, the company will conduct a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Charlotte McLaughlin, Vice President of Investor Relations.

Speaker #1: Charlotte, please go ahead.

Speaker #2: Thank you, operator. Good morning and welcome to the Acuity fiscal 2026 fourth quarter and full-year earnings call. On the call with me this morning are Neil Ashe, our Chairman, President, and Chief Executive Officer, and Karen Holcomb, our Senior Vice President and Chief Financial Officer.

Charlotte McLaughlin: Thank you, operator. Good morning, and welcome to the Acuity Fiscal 2026 Q4 and full year earnings call. On the call with me this morning, 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 2026 Q4 and full year performance. 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 provision of the Private Securities Litigation Reform Act of 1995, as detailed on slide 2 of the accompanying presentation.

Speaker #2: Today's call will include updates on our strategic progress and on our fiscal 2026 fourth quarter and full-year performance. There will be an opportunity for Q&A at the end of the call.

Speaker #2: 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 provision of the Private Securities Litigation Reform Act of 1995.

Speaker #2: As detailed on slide 2 of the accompanying presentation, reconciliations of certain non-GAAP financial metrics with their corresponding GAAP measures are available in our Q4 2026 earnings release and supplemental presentation, both of which are available on our Investor Relations website at www.investors.acuityinc.com.

Charlotte McLaughlin: Reconciliations of certain non-GAAP financial metrics with their corresponding GAAP measures are available in our 2026 Q4 earnings release and supplemental presentation, both of which are available on our investor relations website at www.investors.acuityinc.com. Thank you for your interest in Acuity. I will now turn the call over to Neil Ashe.

Speaker #2: Thank you for your interest in Acuity. I will now turn the call over to Neil Ashe.

Speaker #3: Thank you, Charlotte. And thank you all for joining us this morning. We demonstrated solid execution in the fourth quarter of fiscal 2026. We grew sales, expanded our adjusted operating profit, and increased our adjusted operating profit margin.

Neil Ashe: Thank you, Charlotte. Thank you all for joining us this morning. We demonstrated solid execution in the Q4 of Fiscal 2026. We grew sales, expanded our adjusted operating profit and adjusted operating profit margin. We increased our adjusted diluted earnings per share, generated strong cash flow, and allocated capital effectively. Throughout Fiscal 2026, we strengthened ABL while continuing to scale AIS, building the operating and financial capacity needed to compound growth and value over time. In Acuity Brands Lighting, we continue to advance our strategic and operational priorities. During the Q4, I appointed Ruth Gratzke as President of ABL. Ruth brings extensive leadership experience across go-to-market, product and engineering, and operations in complex industrial technology and infrastructure businesses.

Speaker #3: We increased our adjusted diluted earnings per share, generated strong cash flow, and allocated capital effectively. Throughout fiscal 2026, we strengthened ABL while continuing to scale AIS.

Speaker #3: Building the operating and financial capacity needed to compound growth and value over time. In Acuity Brands Lighting, we continue to advance our strategic and operational priorities.

Speaker #3: During the fourth quarter, I appointed Ruth Gratsky as President of ABL. Ruth brings extensive leadership experience across go-to-market, product and engineering, and operations in complex industrial technology and infrastructure businesses.

Speaker #3: Lighting and lighting controls are essential technologies in every built space. And we have differentiated ABL through our industry-leading capabilities, trusted brand portfolio, and strong customer relationships across luminaires and electronics.

Neil Ashe: Lighting and lighting controls are essential technologies in every built space, and we have differentiated ABL through our industry-leading capabilities, trusted brand portfolio, and strong customer relationships across luminaires and electronics. I believe the combination of Ruth's experience advancing growth and innovation, technical depth, and operating discipline make her the right leader to build on ABL's strong foundation and capture the opportunities ahead. Product vitality is core to our strategy in ABL. Within our luminaires portfolio, we are introducing new products and leveraging established product families to address customer needs and growth opportunities. In Q4, we expanded the BLT family from Lithonia Lighting with a purpose-built luminaire for data centers. Designed around the specialized ceiling grid system used in these facilities, it simplifies installation while bringing BLT's proven performance and reliability to a growing end market.

Speaker #3: I believe the combination of Ruth's experience advancing growth and innovation—technical depth and operating discipline—makes her the right leader to build on ABL's strong foundation and capture the opportunities ahead.

Speaker #3: Product vitality is core to our strategy in ABL. Within our luminaires portfolio, we are introducing new products and leveraging established product families to address customer needs and growth opportunities.

Speaker #3: In the fourth quarter, we expanded the BLT family from Lithonia Lighting with a purpose-built luminaire for data centers. Designed around the specialized ceiling grid system used in these facilities, it simplifies installation while bringing BLT's proven performance and reliability to a growing end market.

Speaker #3: In Luminous, we expanded the HoloCore family with the introduction of HoloCore Element. The solution extends the offering by broadening the range of applications and mounting options, providing architects and designers with greater flexibility while delivering a cohesive visual aesthetic across spaces.

Neil Ashe: In Luminis, we expanded the Hollowcore family with the introduction of Hollowcore Element. The solution extends the offering by broadening the range of applications and mounting options, providing architects and designers with greater flexibility while delivering a cohesive visual aesthetic across spaces. We introduced Ridge by Hydrel, a premium outdoor linear floodlight range used for facades, bridges, tunnels, and stadiums. Ridge combines precision optics with durability and installation flexibility to deliver differentiated architectural lighting outcomes in some of the most challenging environments. Our electronics portfolio also continues to evolve. At the controls layer, nLight connects luminaires and sensors into a single intelligent control architecture that scales from a single room to an entire campus. nLight helps customers reduce energy consumption, improve occupant comfort, simplify code compliance, and gain visibility into building performance through both wired and wireless control options.

Speaker #3: And we introduced Ridge by Hydrel, a premium outdoor linear floodlight range used for façades, bridges, tunnels, and stadiums. Ridge combines precision optics with durability and installation flexibility to deliver differentiated architectural lighting outcomes in some of the most challenging environments.

Speaker #3: Our electronics portfolio also continues to evolve. At the controls layer, InLight connects luminaires and sensors into a single intelligent control architecture that scales from a single room to an entire campus.

Speaker #3: InLight helps customers reduce energy consumption, improve occupant comfort, simplify code compliance, and gain visibility into building performance through both wired and wireless control options.

Speaker #3: Sensor Switch completes the offering with contractor-preferred solutions for simpler applications. At the components layer, ElbowLED is transforming LED drivers from traditional hardware components into configurable solutions through ElbowLED Studio, a cloud-based application that enables customers to configure, deploy, manage, and update drivers more efficiently.

Neil Ashe: SensorSwitch completes the offering with contractor-preferred solutions for simpler applications. At the components layer, eldoLED is transforming LED drivers from traditional hardware components into configurable solutions through eldoLED studio, a cloud-based application that enables customers to configure, deploy, manage, and update drivers more efficiently. The newly released Accela 85-watt driver leverages eldoLED studio and NFC technology to allow customers to tailor the driver to specific applications while simplifying deployment and ongoing management. This creates opportunities to deliver new updates, enhance capabilities, and differentiate performance throughout the life cycle of the lighting solution. The industry continues to recognize our innovation. This quarter, six of our products, including Eureka River and the SensorSwitch TLS twist-to-lock sensor, were included in the IES progress report.

Speaker #3: The newly released Acela 85W driver leverages ElbowLED Studio and NFC technology to allow customers to tailor the driver to specific applications, while simplifying deployment and ongoing management.

Speaker #3: This creates opportunities to deliver new updates, enhanced capabilities, and differentiate performance throughout the lifecycle of the lighting solution. The industry continues to recognize our innovation.

Speaker #3: This quarter, six of our products, including Eureka River and the Sensor Switch TLS Twist-Lock Sensor, were included in the IES Progress Report. Three of our campaigns earned 10 Best of the Best awards, and three products, including Eureka's Torno, received SIT Design Awards—an international program recognizing creativity and innovation in furniture and interior design.

Neil Ashe: Three of our campaigns earned LIT Best of the Best awards, and three products, including Eureka's Torno, received SIT Design Awards, an international program recognizing creativity and innovation in furniture and interior design. Now, switching to Acuity Intelligent Spaces, which continue to deliver strong sales and margin performance. In AIS, we have differentiated and growing portfolios in building operations and in experiences. Over time, a common data architecture will enable interoperability across these portfolios, improving productivity for our customers and making spaces increasingly autonomous. I want to spend some time reflecting on QSC's first full year as part of Acuity. We have aligned the team and established a solid foundation for continued growth. During 2026, our focus was on delivering strong performance and increasing our addressable market by extending Q-SYS into new customer spaces, introducing new solutions, and making progress on our multinational expansion.

Speaker #3: Now, switching to ACUITY Intelligence Spaces, which continue to deliver strong sales and margin performance. In AIS, we have differentiated and growing portfolios, and we are building operations and experiences.

Speaker #3: Over time, a common data architecture will enable interoperability across these portfolios, improving productivity for our customers and making spaces increasingly autonomous. I want to spend some time reflecting on QSC's first full year as part of Acuity.

Speaker #3: We have aligned the team and established a solid foundation for continued growth. During 2026, our focus was on delivering strong performance and increasing our addressable market by extending QSIS into new customer spaces, introducing new solutions, and making progress on our multinational expansion.

Speaker #3: QSIS is recognized for delivering high-quality experiences in spaces ranging from theme parks and stadiums to campuses and corporate offices. Our recently introduced network video management offering, or NVM, represents the next generation of video distribution within the QSIS platform.

Neil Ashe: Q-SYS is recognized for delivering high-quality experiences in spaces ranging from theme parks and stadiums to campuses and corporate offices. Our recently introduced Network Video Management offering, or NVM, represents the next generation of video distribution within the Q-SYS platform. NVM enables customers to connect, distribute, and manage low-latency video across hundreds of endpoints through a common operating environment. This allows customers to deliver live video to hundreds of screens in complex environments like stadiums and casinos. in 2026, we also advanced our vision of transforming all spaces into high-impact spaces. We introduced RoomSuite, the Collaboration Bar, and the Scheduling Panel to bring this capability to small and medium-sized spaces. These solutions illustrate how Q-SYS provides a common platform to manage experiences of all sizes, from individual collaboration rooms to complex, high-impact environments. The industry is already recognizing the value this delivers to our customers.

Speaker #3: NVM enables customers to connect, distribute, and manage low-latency video across hundreds of endpoints through a common operating environment. This allows customers to deliver live video to hundreds of screens in complex environments like stadiums and casinos.

Speaker #3: In 2026, we also advanced our vision of transforming all spaces into high-impact spaces. We introduced Room Suite, the collaboration bar, and the scheduling panel to bring this capability to small- and medium-sized spaces.

Speaker #3: These solutions illustrate how QSIS provides a common platform to manage experiences of all sizes, from individual collaboration rooms to complex, high-impact environments. The industry is already recognizing the value this delivers to our customers.

Speaker #3: During the quarter, QSIS received multiple awards at InfoCon 2026, including the Best of InfoCon awards for the Room Suite collaboration bar and the scheduling panel, and Commercial Integrator's Best Case Study of the Year award for the QSIS Microsoft Experience Center.

Neil Ashe: During the quarter, Q-SYS received multiple awards at InfoComm 2026, including the Best of InfoComm awards for the RoomSuite Collaboration Bar and the Scheduling Panel, and Commercial Integrator's Best Case Study of the Year award for the Q-SYS Microsoft Experience Center. As we enter 2027, I want to step back and talk about what we are building at Acuity. Our strategy is simple. We are building a compounder, compounding our operating capacity that in turn compounds our financial capacity. 2026 was an important year. We advanced core strategic and operational initiatives in Acuity Brands Lighting and invested in the capabilities needed for long-term growth. We scaled Acuity Intelligent Spaces, which is now a quarter of our business, by developing strategically differentiated portfolios that uniquely position us in the market. We believe that our Acuity Platform is our strategic differentiator.

Speaker #3: As we enter 2027, I want to step back and talk about what we are building at ACUITY. Our strategy is simple: we are building a compounder.

Speaker #3: Compounding our operating capacity, which in turn compounds our financial capacity. 2026 was an important year. We advanced core strategic and operational initiatives in Acuity Brands Lighting and invested in the capabilities needed for long-term growth.

Speaker #3: And we scaled ACUITY Intelligence Spaces, which is now a quarter of our business, by developing strategically differentiated portfolios that uniquely position us in the market.

Speaker #3: We believe that our ACUITY platform is our strategic differentiator. We define our platform as our values, how we create value, our better, smarter, faster operating system, and, increasingly, our human-agentic organization.

Neil Ashe: We define our platform as our values, how we create value, our Better. Smarter. Faster. operating system, and increasingly, our human-agentic organization. We are leading in the development of a human-agentic organization, one in which people and intelligent systems work seamlessly together to unlock new capabilities, elevate performance, and accelerate growth. We've been very purposeful in how we have rolled out AI in our business. We are redesigning core processes across the organization through the combination of agentic abilities and reimagined workflows. This is creating repeatable capabilities that can be deployed across the company, accelerating productivity improvements and scaling expertise. We are embedding AI in many of our products. Examples of this include Q-SYS Reflect and Atrius DataLab, which help customers better understand, manage, and optimize their spaces through data, analytics, and actionable insights.

Speaker #3: We are leading in the development of a human-agentic organization—one in which people and intelligent systems work seamlessly together to unlock new capabilities, elevate performance, and accelerate growth.

Speaker #3: We've been very purposeful in how we have rolled out AI in our business. We are redesigning core processes across the organization through the combination of agentic abilities and reimagined workflows.

Speaker #3: This is creating repeatable capabilities that can be deployed across the company, accelerating productivity improvements and scaling expertise. We are embedding AI in many of our products; examples of this include QSIS Reflect and Atreus Data Lab.

Speaker #3: These capabilities help customers better understand, manage, and optimize their spaces through data analytics and actionable insights. They improve outcomes today while creating opportunities to deliver new applications and services in the future.

Neil Ashe: These capabilities improve outcomes today while creating opportunities to deliver new applications and services in the future. We are increasing associate productivity through LLMs and agentic workflow development so that our associates can spend more time applying judgment and creating value. Our Acuity Platform provides the context, capabilities, and operating discipline to make better decisions, move with greater velocity, and turn knowledge, judgment, and experience into repeatable advantage. It is how we are able to operate more productively with greater distribution of responsibility and accountability throughout the organization. It creates financial capacity by driving performance that leads to strong free cash flow generation and the decision-making that supports disciplined capital allocation. The result is a more capable, productive, and resilient business positioned to create stakeholder value over the long term. Now, looking ahead.

Speaker #3: And we are increasing associate productivity through LLMs and agentic workflow development, so that our associates can spend more time applying judgment and creating value.

Speaker #3: Our ACUITY platform provides the context, capabilities, and operating discipline to make better decisions, move with greater velocity, and turn knowledge, judgment, and experience into repeatable advantage.

Speaker #3: It is how we are able to operate more productively, with greater distribution of responsibility and accountability throughout the organization. It creates financial capacity by driving performance that leads to strong free cash flow generation and decision-making that supports disciplined capital allocation.

Speaker #3: The result is a more capable, productive, and resilient business, positioned to create stakeholder value over the long term. Now, looking ahead: in Acuity Brands Lighting, 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.

Neil Ashe: In Acuity Brands Lighting, 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 enter new verticals, we will take share, and we will grow with the market. As we have done in the past, we intend to add around 50 to 100 basis points of adjusted operating profit margin per year. In Acuity Intelligent Spaces, we have differentiated and growing portfolios in building operations and in experiences. Our focus will continue to be on growth, both organic and inorganic, and we have the opportunity to continue to expand margins over time. We are effective capital allocators. We have grown our business organically and through acquisitions, we have increased our dividends, and we have been opportunistic in repurchasing more of our outstanding shares.

Speaker #3: Our growth algorithm is clear: we will enter new verticals, we will take share, and we will grow with the market. As we have done in the past, we intend to add around 50 to 100 basis points of adjusted operating profit margin per year.

Speaker #3: In ACUITY Intelligence Spaces, we have differentiated and growing portfolios in building operations and in experiences. Our focus will continue to be on growth, both organic and inorganic, and we have the opportunity to continue to expand margins over time.

Speaker #3: We are effective capital allocators. We have grown our business organically and through acquisitions. We have increased our dividends, and we have been opportunistic in repurchasing more of our outstanding shares.

Speaker #3: In conclusion, we have demonstrated resilience and adaptability across our organization. We are building the operating and financial capacity needed to compound growth and value over time.

Neil Ashe: In conclusion, we have demonstrated resilience and adaptability across our organization. We are building the operating and financial capacity needed to compound growth and value over time. Now, I will turn the call over to Karen, who will update you on our Q4 performance and our fiscal 2027 outlook.

Speaker #3: Now, I'll turn the call over to Karen, who will update you on our fourth quarter performance and our fiscal 2027 outlook.

Speaker #2: Thank you, Neil, and good morning, everyone. We delivered solid performance in the fourth quarter of fiscal 2026. We grew net sales, improved adjusted operating profit and adjusted operating profit margin, and increased our adjusted diluted earnings per share.

Karen Holcom: Thank you, Neil, and good morning, everyone. We delivered solid performance in Q4 of fiscal 2026. We grew net sales, improved adjusted operating profit and adjusted operating profit margin, and increased our adjusted diluted earnings per share. For total Acuity, we generated net sales of $1.2 billion, which was $35 million, or 3% above the prior year. This was driven by growth in AIS, partially offset by revenue declines at ABL. Both adjusted gross profit margin and adjusted operating profit margin benefited from the continued growth of AIS as it becomes a larger part of the total company. Adjusted gross profit margin improved to 50.2%, an increase of 130 basis points above the prior year. Adjusted operating profit was $233 million, an increase of $8 million, or 3% from last year.

Speaker #2: For total Acuity, we generated net sales of $1.2 billion, which was $35 million, or 3% above the prior year. This was driven by growth in AIS, partially offset by revenue declines at ABL.

Speaker #2: Both adjusted gross profit margin and adjusted operating profit margin benefited from the continued growth of AIS, as it becomes a larger part of the total company.

Speaker #2: Adjusted gross profit margin improved to 50.2%, an increase of 130 basis points above the prior year. Adjusted operating profit was $233 million, an increase of $8 million, or 3%, from last year.

Speaker #2: Adjusted operating profit margin during the quarter was 18.7%, an increase of 10 basis points above the prior year. Our adjusted diluted earnings per share was $5.77, which was an increase of $0.57, or 11%, compared to the prior year, primarily reflecting higher profitability and lower diluted shares outstanding.

Karen Holcom: Adjusted operating profit margin during the quarter was 18.7%, an increase of 10 basis points above the prior year. Our adjusted diluted earnings per share was $5.77, which was an increase of $0.57 or 11% compared to the prior year, primarily reflecting higher profitability and lower diluted shares outstanding. ABL sales of $959 million, decreased $3 million or less than 1% versus Q4 of fiscal 2025, when we were working through an elevated backlog that resulted from orders accelerated in advance of price increases during the back half of fiscal 2025. On a 2-year stacked basis, total ABL sales were flat and the independent sales network and direct sales network combined grew 3%. ABL again delivered strong adjusted gross profit margin of 46.2%, driven largely by product and productivity improvements.

Speaker #2: ABL sales of $959 million decreased $3 million, or less than 1%, versus the fourth quarter of fiscal 2025, when we were working through an elevated backlog that resulted from orders accelerated in advance of price increases during the back half of fiscal 2025.

Speaker #2: On a two-year stacked basis, total ABL sales were flat, and the independent sales network and direct sales network combined grew 3%. ABL again delivered a strong adjusted gross profit margin of 46.2%, driven largely by product and productivity improvements.

Speaker #2: This quarter, we received $32 million in tariff refunds and had a $15 million special charge that resulted from certain actions related to productivity improvements, including initiatives involving our product portfolio, supply chain, and operating footprint.

Karen Holcom: This quarter, we received $32 million in tariff refunds and had a $15 million special charge that resulted from certain actions related to productivity improvements, including initiatives involving our product portfolio, supply chain, and operating footprint. Both of these items were adjusted out of our results. Adjusted operating profit declined $14 million to $180 million, and we delivered adjusted operating profit margin of 18.8%, which was a decrease of 130 basis points compared to the prior year, as we invested in technology which supported the stronger gross profit margin. Moving to Acuity Intelligent Spaces. Sales for Q4 were $298 million, an increase of $43 million or 17%, driven by strong growth across our portfolios. AIS delivered adjusted gross profit margin of 61.2%, an increase of 200 basis points compared to the prior year.

Speaker #2: Both of these items were adjusted out of our results. Adjusted operating profit declined $14 million to $180 million, and we delivered an adjusted operating profit margin of 18.8%, which was a decrease of 130 basis points compared to the prior year as we invested in technology, which supported the stronger gross profit margin.

Speaker #2: Now, moving to ACUITY Intelligence Spaces. Sales for the fourth quarter were $298 million, an increase of $43 million, or 17%, driven by strong growth across our portfolios.

Speaker #2: AIS delivered an adjusted gross profit margin of 61.2%, an increase of 200 basis points compared to the prior year. This quarter, we received $13 million in tariff refunds and had a $3 million special charge due to an impairment of a facility.

Karen Holcom: This quarter, we received $13 million in tariff refunds and had a $3 million special charge due to an impairment of a facility. Both of these items were adjusted out of our results. Adjusted operating profit was $74 million, an increase of $19 million or 36%, with an adjusted operating profit margin of 24.9%, which was up 350 basis points compared to the prior year. Memory cost increases did not affect our performance in Q4. However, we do expect an impact to our margins in AIS in fiscal 2027. We plan to manage this as we have other supply chain disruptions. Our first priority is to secure the inventory needed to service our customers. Our second priority is to recover the incremental cost in dollars. We will also begin the process of accelerating our product and productivity initiatives to recover margins. Turning to our cash flow performance.

Speaker #2: Both of these items were adjusted out of our results. Adjusted operating profit was $74 million, an increase of $19 million or 36%, with an adjusted operating profit margin of 24.9%, which was up 350 basis points compared to the prior year.

Speaker #2: Memory cost increases did not affect our performance in the fourth quarter. However, we do expect an impact to our margins in AIS in fiscal 2027.

Speaker #2: We plan to manage this as we have other supply chain disruptions. Our first priority is to secure the inventory needed to service our customers. Our second priority is to recover the incremental cost in dollars. We will also begin the process of accelerating our product and productivity initiatives to recover margins.

Speaker #2: Now, turning to our cash flow performance. During the fiscal year, we generated $826 million of cash flow from operations, which was $225 million higher than in fiscal 2025.

Karen Holcom: During the fiscal year, we generated $826 million of cash flow from operations, which was $225 million higher than in fiscal 2025. This increase was due to our operating performance, tariff refunds, and lower tax payments. In fiscal 2026, we continued to allocate capital effectively and consistent with our priorities. We invested for growth in our existing businesses by allocating $78 million for capital expenditures. During the year, we refinanced our revolving credit facility and continued to reduce debt. We repaid $200 million of our debt during fiscal 2026, and after the close of the year, we repaid another $200 million. As a result, we have now fully repaid the borrowings used to finance the QSC acquisition. We increased our dividend by 18% and allocated $287 million to repurchase over 940,000 shares.

Speaker #2: This increase was due to our operating performance, tariff refunds, and lower tax payments. In fiscal 2026, we continued to allocate capital effectively and consistently with our priorities.

Speaker #2: We invested for growth in our existing businesses by allocating $78 million for capital expenditures. During the year, we refinanced our revolving credit facility and continued to reduce debt.

Speaker #2: We repaid $200 million of our debt during fiscal 2026, and after the close of the year, we repaid another $200 million. As a result, we have now fully repaid the borrowings used to finance the QSC acquisition.

Speaker #2: We increased our dividend by 18% and allocated $287 million to repurchase over 940,000 shares. Since the beginning of the fourth quarter of fiscal 2020, we have repurchased almost 11 million shares at an average price of around $164 per share, which was funded through organic cash flow.

Karen Holcom: Since the beginning of Q4 of fiscal 2020, we have repurchased almost 11 million shares at an average price of around $164 per share, which was funded through organic cash flow. This amounts to nearly 28% of the then outstanding shares. I want to spend a few minutes on our outlook for 2027. Consistent with our prior practice, we are going to provide annual guidance anchored around net sales and adjusted diluted earnings per share. We will also provide you with certain assumptions, which you can find in the supplemental presentation available on our website after the conclusion of this call. For full year fiscal 2027, our expectation is that net sales will be within the range of $4.7 billion and $4.9 billion for total AYI.

Speaker #2: This amounts to nearly 28% of the then outstanding shares. Now, I want to spend a few minutes on our outlook for 2027. Consistent with our prior practice, we are going to provide annual guidance anchored around net sales and adjusted diluted earnings per share.

Speaker #2: We will also provide you with certain assumptions, which you can find in the supplemental presentation available on our website after the conclusion of this call.

Speaker #2: For full-year fiscal 2027, our expectation is that net sales will be within the range of $4.7 billion and $4.9 billion for total AYI.

Speaker #2: This is based on the assumption that ABL will deliver flat to low single-digit sales growth, and AIS will generate low to mid-teens sales growth.

Karen Holcom: This is based on the assumption that ABL will deliver flat to low single-digit sales growth, and AIS will generate low to mid-teen sales growth. We expect to deliver adjusted diluted earnings per share within the range of $20.50 to $22. In summary, we delivered a solid performance in fiscal 2026 and finished the year with momentum. AIS continued to grow and deliver strong margins while we strengthen the foundation of our ABL business. We generated significant cash flow, allocated capital effectively, and ended the year with a strong balance sheet. We are well-positioned to deliver sales and EPS growth in fiscal 2027. Thank you for joining us today. I will now pass you over to the operator to take your questions.

Speaker #2: We expect to deliver adjusted diluted earnings per share within the range of 20 dollars and 50 cents to 22 dollars. In summary, we delivered a solid performance in fiscal 2026 and finished the year with momentum.

Speaker #2: AIS continued to grow and deliver strong margins, while we strengthened the foundation of our ABL business. We generated significant cash flow, allocated capital effectively, and ended the year with a strong balance sheet.

Speaker #2: We are well-positioned to deliver sales and EPS growth in fiscal 2027. Thank you for joining us today. I will now pass you over to the operator to take your questions.

Speaker #1: First question comes from Tim Woes with Baird. Your line is now open.

Operator: First question comes from Tim Wojs with Baird. Your line is now open.

Speaker #3: Hey everybody, good morning. Thanks for your time. Karen, maybe just to kind of circle back on the guidance commentary that you just gave—I don't think, just kind of a quick back-of-the-envelope calculation, that it implies a lot of margin expansion.

Tim Wojs: Hey, everybody. Good morning. Thanks for the time. Karen, maybe just to kind of circle back on the guidance commentary that you just gave. I do not think, just kind of quick back the envelope, that it implies a lot of margin expansion. We obviously have a fair amount of inflation that is kind of entering the system. So maybe you could just talk about, A, is that correct, and B, how we should kind of think about inflation, kind of pricing and maybe the cadence in margins as we think about fiscal 2027.

Speaker #3: We obviously have a fair amount of inflation that's kind of entering the system. So maybe you could just talk about, A, is that correct?

Speaker #3: And B, how should we think about inflation, pricing, and maybe the cadence of margins as we look ahead to fiscal 2027?

Speaker #4: Yeah, Tim, thank you for that question and thanks for being here this morning. So let me just reiterate what I said in the prepared remarks.

Karen Holcom: Yeah, Tim, thank you for that question, and thanks for being here this morning. So let me just reiterate what I said in the prepared remarks. We expect sales to be in the range of $4.7 billion and $4.9 billion, and EPS $20.50 to $22. And what this reflects is our low single digit, flat to low single digit sales growth at ABL and low to mid-teens at AIS. So what you are seeing is continued growth in AIS is also impacting the favorable mix, so that is having some improvement on the overall EPS as well as ongoing productivity. But I think to your question of why you are not seeing a lot of margin improvement is what I was referring to with some of the memory cost increases at AIS that we are anticipating for next year.

Speaker #4: We expect sales to be in the range of 4.7 billion and 4.9 billion and EPS 20 dollars and 50 cents to 22 dollars. And what this reflects is our low single-digit flat to low single-digit sales growth at ABL and low to mid-teams at AIS.

Speaker #4: So what you're seeing is continued growth in AIS, which is also impacting the favorable mix. That's having some improvement on the overall EPS, as well as ongoing productivity.

Speaker #4: But I think, to your question of why you're not seeing a lot of margin improvement, it's what I was referring to with some of the memory cost increases at AIS that we're anticipating for next year.

Speaker #4: So the underlying business is still really strong, but just the impact of those memory cost increases—while it doesn't impact the pricing—and to cover the cost is having some impact.

Karen Holcom: The underlying business is still really strong, but just the impact of those memory cost increases, while it does not impact the pricing and to cover the cost, is having some impact. As we said, our priority there will be to ensure we have the right supply for our customers. The second will be to cover the cost in dollars, and then over time, we will work back that margin. That is probably a little bit of what you see. But overall, we think we are in a really good place as we enter 2027, and we will continue to adapt to these conditions.

Speaker #4: So, as we said, our priority there will be to ensure we have the right supply for our customers. The second will be to cover the cost in dollars, and then, over time, we will work back that margin.

Speaker #4: So that's probably a little bit of what you see. But overall, we think we're in a really good place as we enter 2027, and we'll continue to adapt to these conditions.

Speaker #3: Okay. Is there a way to kind of I guess pinpoint or just kind of kind of ring fence like what the memory cost headwind is?

Tim Wojs: Okay. Is there a way to kind of, I guess, pinpoint or just kind of ring-fence, like, what the memory cost headwind is? Are we talking about kind of flattish margins in AIS this year all inclusive of everything? Or just trying to conceptualize what the higher memory costs actually mean for the model.

Speaker #3: We're talking about kind of flattish margins in AIS this year, kind of all-inclusive of everything. I'm just trying to conceptualize what the higher memory costs actually mean for the model.

Speaker #4: Yeah, I think if you take memory costs alone, similar to what we've—excuse me—talked about before with tariffs and other disruptions that we've had, this is around a couple hundred basis points.

Karen Holcom: Yeah, I think if you take memory costs alone, similar to what we have, excuse me, talked about before with tariffs and other disruptions that we have had, this is around a couple of hundred basis points. So think of it that way. Now, they will still work to improve that with some SD&A as leverage as they grow their sales. But you may not see the full impact of that couple of hundred basis points, but that is the gross impact around that.

Speaker #4: So, think of it that way. Now, they will still work to improve that with some SDNA leverage as they grow their sales. But you may not see the full impact of that couple hundred basis points, but that's the gross impact.

Speaker #4: Around that, yeah. The gross to gross profit.

Tim Wojs: Okay.

Karen Holcom: Yeah. The gross-

Karen Holcom: Okay, that's helpful.

Karen Holcom: to gross profit.

Speaker #3: Okay, gotcha. And then, Neil, you added a new leader in the ABL business recently. Can you just kind of talk about what she adds to the business and what it means for the ABL business going forward, just in terms of focus?

Tim Wojs: Okay, got you. Neil, you added a new leader in the ABL business recently. Can you just talk about what she adds to the business and what it means for the ABL business going forward, just in terms of focus?

Speaker #5: Sure. So, before I talk about Ruth, though, I do want to talk about Acuity Brands Lighting for a second. Acuity Brands Lighting is the undisputed leader in North America and the best-performing lighting company in the world.

Neil Ashe: Sure. Before I talk about Ruth, I do want to talk about Acuity Brands Lighting for a second. Acuity Brands Lighting is the undisputed leader in North America and the best-performing lighting company in the world, and lighting and lighting controls are essential technology in every built space. In other words, this is an outstanding platform. Over the course of the last five or six years, we've taken that business from high 30s gross profit margins to upper middle 40s gross profit margins through structural improvements in the business. We are confident in the continued trajectory that we can display with Acuity Brands Lighting. I chose to bring Ruth in, both because of what I believe ABL can do and also what I believe she can do. She comes to us from Siemens.

Speaker #5: And lighting and lighting controls are essential technology in every built space. In other words, this is an outstanding platform. Over the course of the last five or six years, we've taken that business from high 30s gross profit margins to upper middle 40s gross profit margins through structural improvements in the business.

Speaker #5: And we are confident in that continued trajectory that we can display with Acuity Brands Lighting. I chose to bring Ruth in both because of what I believe ABL can do and also what I believe she can do.

Speaker #5: So, she comes to us from Siemens. She's got a demonstrated history in industrial technology, and everything from go-to-market to product and engineering to operations, with disciplined growth.

Neil Ashe: She has a demonstrated history in industrial technology and everything from go-to-market to product and engineering to operations with disciplined growth. She has taken large businesses and increased their size materially. She fits with us culturally and can grow. What I want to emphasize is I feel like even all the way back to when I joined Acuity, the narrative around the lighting industry has always been what can the lighting industry be that is different than what it is. I think we need to celebrate what the lighting business and the lighting industry is, which is what I said when I got here. The lighting business is incredibly durable. It is essential to every built space, and we have the opportunity, we have demonstrated the opportunity for material structural improvement in the quality of the business, and we will continue that over time.

Speaker #5: Where she's taken large businesses and increased their size materially. She fits with us culturally and can grow. But what I want to emphasize is, I feel like, even all the way back to when I joined Acuity, the narrative around the lighting industry has always been: what can the lighting industry be that's different than what it is.

Speaker #5: And I think we need to celebrate what the lighting business and the lighting industry is, which is what I said when I got here.

Speaker #5: The lighting business is incredibly durable. It's essential to every built space, and we have the opportunity—we've demonstrated the opportunity—for material structural improvement in the quality of the business, and we'll continue that over time.

Speaker #5: So she's a perfect fit for where that business is now and where I want it to go over the course of the next five years.

Neil Ashe: She is a perfect fit for where that business is now and where I want it to go over the course of the next five years.

Speaker #3: Great, I'll hop back in to you. Thanks a lot, guys.

Tim Wojs: Great. I will hop back in, too. Thanks, Lucas.

Speaker #1: All right, next question comes from Ryan Merkel with William Blair. Your line is now open.

Operator: Our next question comes from Ryan Merkel with William Blair. Your line is now open.

Speaker #6: Hey, good morning everyone. Thanks for the question. Neil or Karen, can you talk about ABL order trends and how we should think about seasonality for fiscal Q1?

Ryan Merkel: Hey, good morning, everyone. Thanks for the question. Neil or Karen, can you talk about ABL order trends and how we should think about seasonality for fiscal Q1? Can you comment on if you've seen any impact from higher interest rates and higher cost inflation on project activity?

Speaker #6: And then, can you comment on whether you've seen any impact from higher interest rates and increased cost inflation on project activity?

Speaker #5: Yeah, thanks, Ryan. So, we've talked about in the last earnings call that the order rate and the general business climate around ABL had firmed, and that's what we expect to continue into next year.

Neil Ashe: Yeah. Thanks, Ryan. We talked about in the last earnings call that the order rate and the general business climate around ABL had firmed, and that is what we expect to continue into next year. In fact, we were just down this week at our next sales conference, where we bring together the entire independent sales network and many of our product leaders and introduce the new products for 2027 and beyond. It was hard to not appreciate the energy in the room all around. We feel pretty good about where the business is. On the seasonality, I think that the only impact to normal seasonality is two things.

Speaker #5: In fact, we were just down this week at our next sales conference, where we bring together the entire independent sales network and many of our product leaders, and introduce the new products for 2027.

Speaker #5: And beyond that, it was hard not to appreciate the energy in the room, kind of all around. So we feel pretty good about where the business is.

Speaker #5: On the seasonality, I think that's the only impact to normal seasonality—it's two things. One is the increased backlog that we were dealing with last year.

Neil Ashe: One is the increased backlog that we were dealing with last year, number one, on a year-over-year basis. Number two, the impact of corporate accounts, which you can start to see working their way into our performance. As it relates to interest rates, obviously, we do not control the economy or the interest rates. What we have done is we have demonstrated that we perform in all environments. As it relates to the top-level context via interest rates, interest rates now are back to where they have been on an average basis over the last 30 years. A lot of stuff got built in the last 30 years. Our view is that the business will normalize based on the opportunities that are in front of us.

Speaker #5: Number one, on a year-over-year basis. And then, number two, the impact of corporate accounts, which you can start to see kind of working their way into our performance.

Speaker #5: As it relates to interest rates, obviously we don't control the economy or the interest rates. But what we have done is we've demonstrated that we perform in all environments.

Speaker #5: And as it relates to the top-level context regarding interest rates, interest rates are now back to where they have been, on an average basis, over the last 30 years.

Speaker #5: So, a lot of stuff got built in the last 30 years. Our view is that the business will normalize based on the opportunities that are in front of us.

Speaker #5: And our ABL business is so resilient, partly because we address many segments of the market. So, we can find our way to where growth is in the market.

Neil Ashe: Our ABL business is so resilient, partly because we address many segments of the market, so we can find our way to where growth is in the market. Obviously, you can imagine we had a very strong year in data centers in 2026 for lighting. We introduced, as I mentioned in the prepared comments, a purpose-built solution for data centers going forward. We will continue to get our unfair share of data centers on the lighting side, which is an example of us adapting to where the market is taking us. Put all that together and our durable lighting business will continue to perform in 2027.

Speaker #5: So obviously, you can imagine we had a very strong year in data centers in '26. We, for lighting, introduced—as I mentioned in the prepared comments—a purpose-built solution for data centers going forward.

Speaker #5: So we'll continue to get our unfair share of data centers, which, on the lighting side, is an example of us adapting to where the market is taking us.

Speaker #5: So, putting all that together, our durable lighting business will continue to perform in 2027.

Speaker #6: That's great. Thanks for that, Neil. And then a follow-up on AIS gross margin. I guess it's a two-parter. The margin in the quarter was a lot better than we were expecting.

Ryan Merkel: That's great. Thanks for that, Neil. A follow-up on AIS gross margin, I guess a two-parter. The margin in the quarter was a lot better than we were thinking. Maybe just unpack why it was so good. Then back to Tim's question, a couple hundred basis point impact from memory. Just want to make sure I heard that right. When does that impact hit? Should we think about that impacting right away as we model fiscal Q1, or does that take a quarter or two before that shows up? Thanks.

Speaker #6: So maybe just unpack why it was so good, and then back to Tim's question. A couple hundred basis point impact, from memory—just want to make sure I heard that right.

Speaker #6: And when does that impact hit? Should we think about that impacting right away as we model fiscal Q1, or does that take a quarter or two before that shows up?

Speaker #6: Thanks.

Speaker #5: Yeah. Let me first take a step back and talk about AIS. So, as I contextualized ABL and the improvement in ABL over time, I want to do the same for AIS.

Neil Ashe: Yeah. Let me first take a step back and talk about AIS. As I contextualized ABL and the improvement in ABL over time, I want to do the same for AIS. AIS has gone from about USD 150 million in revenue and negative operating income to what you see today, which is a large, vibrant and growing business with outstanding opportunity ahead. We've done that mostly organically, but also inorganically. We have a playbook to continue to improve this business over time, to grow this business over time, and to make it an increasingly important part of Acuity. All of the dexterity that we've demonstrated in our performance in ABL, now we're bringing also to AIS.

Speaker #5: So AIS has gone from about $150 million in revenue and negative operating income to what you see today, which is a large, vibrant, and growing business with outstanding opportunities ahead.

Speaker #5: And we've done that both, or mostly organically, but also inorganically. And so we have a playbook to continue to improve this business over time.

Speaker #5: To grow this business over time and to make it an increasingly important part of Acuity. So all of the dexterity that we've demonstrated in our performance in ABL, now we're bringing also to AIS.

Speaker #5: So when there are supply chain shocks, whether it's the pandemic, land wars, oil prices, interest rates, memory costs, whatever they are, we've demonstrated that A, we can adapt to them.

Neil Ashe: When there are supply chain shocks, whether it's the pandemic, land wars, oil prices, interest rates, memory costs, whatever they are, we've demonstrated that, A, we can adapt to them, B, we can continue to deliver, and C, we can continue the trajectory of improvement in the business. The memory cost impact in AIS is just another one of those mild speed bumps on the path to where we're going. As Karen indicated, they probably work out to about 200 basis points of gross margin impact over the course of the year. They basically keep operating margins flat to slightly up. But we will continue to recover those at a percentage basis over time. As you do your modeling, the modeling will depend on when the inventory works its way through sales. It didn't in the Q4, as Karen indicated in her prepared remarks.

Speaker #5: B, we can continue to deliver; and C, we can continue the trajectory of improvement in the business. So the memory cost impact in AIS is just another one of those mild speed bumps on the path to where we're going.

Speaker #5: As Karen indicated, there will probably be about 200 basis points of gross margin impact over the course of the year, and they basically keep operating margins flat to slightly up.

Speaker #5: So, we will continue to recover those on a percentage basis over time. As you do your modeling, the modeling will depend on when the inventory works its way through sales.

Speaker #5: So it didn't in the fourth quarter, as Karen indicated in her prepared remarks. It will probably start to impact late in the first quarter and into our fiscal second quarter.

Neil Ashe: It will probably start to impact late in the Q1 and into our fiscal Q2.

Speaker #6: Awesome. Very helpful. I'll pass it on. Thanks.

Ryan Merkel: Awesome. Very helpful. I will pass it on. Thanks.

Neil Ashe: Thanks.

Speaker #5: Thanks.

Speaker #1: Our next question comes from Christopher Glynn at Oppenheimer. Your line is now open.

Operator: Our next question comes from Christopher Glynn at Oppenheimer. Your line is now open.

Speaker #7: Thanks. Good morning, everybody. I just wanted to spend a moment on the margin profile for ABL. You had a little bit of sequential gross margin improvement.

Christopher Glynn: Thanks. Good morning, everybody.

Neil Ashe: Chris.

Christopher Glynn: I just wanted to spend a moment on the margin profile for ABL. You had a little bit of sequential gross margin improvement. Usually, I think it ticks down seasonally. I know the last couple of quarters you have been rebuilding momentum and forecasting that that will hold. At any rate, it is a pretty solid jumping-off point into the new fiscal year to anticipate strong gross margin trends for ABL. You did reemphasize the 50 to 100 basis points a year, Neil, for the longer term. I am kind of leading you here a little bit, but are we pretty happy with the gross margin picture and moving into that framework of 50 to 100 for ABL next year?

Speaker #7: Usually, I think it ticks down seasonally. I know the last couple of quarters you've been rebuilding momentum and forecasting that will hold. At any rate, it is a pretty solid jumping-off point into the new fiscal year to anticipate strong gross margin trends for ABL, and you did re-emphasize the 50 to 100 basis points a year, Neil, for the longer term.

Speaker #7: So, I'm kind of leading you here a little bit, but are we pretty happy with the gross margin picture and moving into that framework of $50 to $100 for ABL next year?

Speaker #5: Yeah, Chris, thanks for the question and for picking up on the earlier comment and tying it back to the results. The trend for ABL is pretty obvious.

Neil Ashe: Yeah, Chris, thanks for the question. Picking up on the earlier comment and tying it back to the results, the trend for ABL is pretty obvious. As you unpack the gross margin improvement that we have made over the last periods and as we look forward to the periods going forward, the primary driver of that are structural improvements we have made in the business. So those improvements have been in the face of relatively low growth, as is pretty obvious from the results. The impact of those structural improvements is greater than the impact of growth. However, growth with those structural improvements compounds on each other. As you look forward, obviously we guided to flat to low singles for the lighting business next year. So we are not counting on a growth tailwind to drive those margins. We are counting on our continued structural improvement in the business.

Speaker #5: And as you unpack the gross margin improvement that we've made over the last period, and as we look forward to the periods going forward, the primary driver of that is the structural improvements we've made in the business.

Speaker #5: So those improvements have been in the face of relatively low growth, as is pretty obvious from the results. So the impact of those structural improvements is greater than the impact of growth.

Speaker #5: However, growth with those structural improvements compounds on each other. So as you look forward, obviously we guided to flat to low single digits for the lighting business next year.

Speaker #5: So we're not counting on a growth tailwind to drive those margins. We are counting on our continued structural improvement in the business. And as I said earlier—on the earlier answer to Ruth coming in—now, this is a great setup for where this business is going to go over the next five years.

Neil Ashe: As I said earlier, on the earlier answer to Ruth coming in now, this is a great setup for where this business is going to go over the next 5 years. As I indicated, we are really bullish about that.

Speaker #5: And as I indicated, we're really bullish about that.

Speaker #7: Okay, great. And then, the savings from the $50 million special charges—does that benefit HOGS a little bit in each of the two segments?

Christopher Glynn: Okay, great. The savings for the $15 million special charges, does that benefit COGS a little bit in each of the two segments?

Speaker #5: Yeah, so those were primarily related to a few things. One is, we've started to adjust our manufacturing network as a result of all the productivity improvements that we have implemented over the last five years.

Neil Ashe: Yeah. Those were primarily related to a few things. One is we have started to adjust our manufacturing network as a result of all of the productivity improvements that we have implemented over the last 5 years. So we closed one facility, we consolidated into another. That is the primary driver of those costs. You will see the impact of that primarily in gross profit margin over time. Otherwise, we also eliminated some smaller brands and some smaller product lines, which we did not expect to be contributors over the long term. So you should expect to see us continue to do this, Chris. As we drive productivity, we can rationalize our footprint because we do not need the whole footprint anymore, even as we grow. So expect to see us continue to push that forward over time.

Speaker #5: So we closed one facility. We consolidated into another. That's the primary driver of those costs. And so you'll see the impact of that primarily in gross profit margin over time.

Speaker #5: Otherwise, we also eliminated some smaller brands and some smaller product lines which we didn't expect to be contributors over the long term.

Speaker #5: So, you should expect to see us continue to do this, Chris. We will continue to—as we drive productivity, we can rationalize our footprint because we don't need the whole footprint anymore.

Speaker #5: Even as we grow. So, expect to see us continue to push that forward over time.

Speaker #7: Okay, great. Thanks. And just so I could seek another— you talked about the data center initiative and controls last quarter, the direct digital control and the PLC side of things.

Christopher Glynn: Okay, great. Thanks. Just if I could sneak in another. You talked about the data center initiative and controls last quarter, the direct digital control and the PLC side of things. Just wondering if you could update where that technology is in terms of qualification and getting recognized in the channel. Also your acquisition pipeline, any updates there? Thank you.

Speaker #7: So, just wondering if you could update where that technology is in terms of qualification and getting recognized in the channel, and also your acquisition pipeline.

Speaker #7: Any updates there. Thank you.

Speaker #5: Yeah. So, first, on intelligence, first of all, I addressed data centers for lighting in the lighting section. So now, addressing data centers on the intelligence basis side.

Neil Ashe: Yeah. First of all, I addressed data centers for lighting in the lighting section. Now addressing data centers on the Acuity Intelligent Spaces side. We have the premier DDC controller in the market at Distech, and we have added a PLC controller, which puts us in position to service multiple hyperscalers going forward. First of all, the existing sales continue and are growing as you would expect, and we are in the door with more and more hyperscalers over time. I feel like we are well-positioned, and we will continue that push on the data centers. As we look forward to our acquisition pipeline, we also have a strong acquisition pipeline with multiple choices of companies to choose from. Again, our priority is around continuing to grow Acuity Intelligent Spaces into a larger and larger portion of our company. Our philosophy is really straightforward.

Speaker #5: We have the premier DDC controller in the market, and DISTECH, and we've added a PLC controller, which puts us in position to service multiple hyperscalers going forward. Those discussions—first of all, the existing sales continue and are growing as you would expect, and we are in the door with more and more hyperscalers over time.

Speaker #5: So I feel like we're well positioned, and we will continue that push on the data centers. As we look forward to our acquisition pipeline, we also have a strong acquisition pipeline with multiple choices of companies to choose from.

Speaker #5: Again, our priority is around growing Intelligence Spaces—continuing to grow Intelligence Spaces into a larger and larger portion of our company. But our philosophy is really straightforward.

Speaker #5: We buy high-quality assets at fair prices, and we've demonstrated that we can operate them really effectively going forward. So we feel good about the pipeline.

Neil Ashe: We buy high-quality assets at fair prices, and then we have demonstrated that we can operate them really effectively going forward. So, we feel good about the pipeline. We have got multiple things to choose from, and they will continue to be additive to our direction.

Speaker #5: We've got multiple things to choose from, and they will continue to be additive to our direction.

Speaker #1: Our next question comes from Joe O'Day with Vertical Research. Your line is now open.

Operator: Our next question comes from Joe O'Dea with Vertical Research. Your line is now open.

Speaker #8: Hi, good morning. Can you talk about the cost inflation and pricing side of things in ABL? Just any sizing of the type of inflation you're seeing across raws as components, as we see freight as well.

Joe O'Dea: Hi. Good morning. Can you talk about the cost inflation and pricing side of things in ABL? Just any sizing of the type of inflation you are seeing across raw components as we see freight, and then the pricing response to that. Is the pricing in the market, or how should we think about the timing and magnitude of pricing that would be coming?

Speaker #8: And then the pricing response to that—is the pricing in the market, or how should we think about the timing and magnitude of pricing that would be coming?

Speaker #5: Yeah, thanks, Joe. Let me talk about pricing generally at ABL, and then I will answer the specifics. So, first, we've been very consistent in explaining how we price at ABL.

Neil Ashe: Yeah. Thanks, Joe. Let me talk about pricing generally at ABL, and then I will answer the specifics. First, we have been very consistent in explaining how we price at ABL. We price strategically to realize the value that our products derive in the marketplace. Through our performance, you can see that we have continued to increase gross margins over time as we have done that. The primary driver of the gross margin is the structural improvements that I derived. In other words, we do not price to a markup of changing inflation. We do cover the dollar costs of supply shocks and the continued evolution in trade policy and other things. Now to the specific inflation.

Speaker #5: We price strategically to realize the value that our products derive in the marketplace. And through our performance, you can see that we've continued to increase gross margins over time as we've done that.

Speaker #5: So the primary driver of the gross margin is the structural improvements that I described. So, in other words, we don't price to a markup based on changing inflation.

Speaker #5: So, we do cover the dollar costs of supply shocks and the continued evolution in trade policy and other things. So, now to the specific inflation.

Speaker #5: Yes we do see some inflation in some commodities deal freight those sorts of things. Which we deal with in through our purchasing through our product development efforts and through productivity in our manufacturing going forward.

Neil Ashe: Yes, we do see some inflation in some commodities, steel, freight, those sorts of things, which we deal with through our purchasing, through our product development efforts, and through productivity in our manufacturing going forward. We also continue on our normal strategic cadence of pricing, which includes controlled pricing and others. We announced a price increase, which is our normal price increase for the business. We have announced it in September. It goes live in December. That is where our continued direction will be, is one, to lead the industry. Two, through strategic pricing, which we focus on really identifying and realizing the value that our products deliver in the marketplace. The smaller percentage then is to adjust that to deal with any changes in inflation, trade policy, et cetera.

Speaker #5: We also continue on our normal strategic cadence of pricing, which includes controlled pricing and others. So, we announced a price increase, which is our normal price increase.

Speaker #5: For the business, we've announced it in September. It goes live in December. That's where our continued direction will be—one to lead the industry through strategic pricing, which we focus on really identifying and realizing the value that our products deliver in the marketplace.

Speaker #5: And the smaller percentage, then, is to adjust that to deal with any changes in inflation, trade policy, etc.

Speaker #8: And then on ABL and SDNA specifically, those dollars went up a little more than we anticipated sequentially. As a percent of revenue, it's up a couple hundred basis points versus where it was a year ago in the fourth quarter.

Joe O'Dea: On ABL and SD&A specifically, those dollars went up a little more than we anticipated sequentially. As a percent of revenue, that is up a couple hundred bits versus where it was a year ago in the fourth quarter. It sounds like there is some COGS coming out structurally, but are you structurally adding SD&A? Specifically, any color around the technology investments that you are making there?

Speaker #8: So it sounds like there are some cogs coming out structurally, but are you structurally adding SDNA? And then, specifically, any color around the technology investments that you're making there?

Speaker #5: Yeah, so those will normalize over time. That's just one quarter, so I wouldn't place too much credence on the fourth quarter. There are some timing things going on, etc.

Neil Ashe: Yeah. Those will normalize over time. That is just one quarter. I would not place too much credence on the Q4. There are some timing things going on, et cetera, and one-timers. The investment that we are making in technology is incredibly purposeful and unbelievably valuable. You know my background. I have been through these technology transformations multiple times, from Internet 1.0 to social to mobile, now to AI or I guess as of today, super intelligence. I will tell you that I am incredibly bullish on both the impact. Well, first of all, the technology. I am an AI optimist. Second, I believe that the benefits of that technology will not be evenly distributed. Everyone will get some benefit, but organizations like ours that know how to, A, to control it ourselves and, B, to use it to actually change the business, will have disproportionate benefit over time.

Speaker #5: And one-timers. The investment that we're making in technology is incredibly purposeful and unbelievably valuable. So you know my background—I've been through these technology transformations multiple times, from Internet 1.0 to social to mobile, now to AI—or, I guess as of today, super intelligence.

Speaker #5: And I will tell you that I am incredibly bullish on both the impact—well, first of all, the technology. So, I'm an AI optimist.

Speaker #5: Second, I believe that the benefits of that technology will not be evenly distributed. So everyone will get some benefit, but organizations like ours that know how to (A) control it ourselves and (B) use it to actually change the business will have disproportionate benefit over time.

Speaker #5: And so these are incredibly responsible investments that we're making in technology, and I expect them to yield very positive results.

Neil Ashe: These are incredibly responsible investments that we are making in technology, and I expect them to yield very

Joe O'Dea: Last one just related to that. You recently added a board member, maybe someone who also would be characterized as AI optimist. As you think about the AI value creation opportunity, how do you think about that on the revenue side of things? When will we hear you talking more about AI as a revenue tailwind?

Speaker #8: Last one just related to that—you recently added a board member, maybe someone who also would be characterized as an AI optimist. But as you think about the AI value creation opportunity, how do you think about that on the revenue side of things?

Speaker #8: And when will we hear you talking more about AI as a revenue tailwind?

Speaker #5: So let me kind of stack the benefits over time of what we're doing. AI is technology, and what AI does is write software at the end of the day.

Neil Ashe: Let me kind of stack the benefits over time of what we are doing. AI is technology, and what AI does is write software at the end of the day. Then we use that to reevaluate our core processes and drive structural improvement in our ability to deliver whatever it is that we choose to deliver. From the back of the house on things like how we pay invoices forward to the structural kind of gross margin to product development. The revenue growth impact will come over time as we shorten our product development life cycles and we continue to move faster than anyone else in the industry. That, I think, is going to be the ultimate growth drivers.

Speaker #5: So then, we use that to reevaluate our core processes and drive structural improvement in our ability to deliver whatever it is that we choose to deliver.

Speaker #5: From the back of the house on things like how we pay invoices, forward to the structural kind of gross margin, to product development. The revenue growth impact will come over time as we shorten our product development life cycles and we continue to move faster than anyone else in the industry.

Speaker #5: That, I think, is going to be the ultimate growth driver. Then, over time at AIS, we believe principally—but not maybe exclusively—that we can use AI to drive applications or to deliver applications which drive outcomes for our customers in spaces.

Neil Ashe: Then over time at AIS, principally, but not exclusively, we believe that we can use AI to drive applications or to deliver applications which drive outcomes for our customers in spaces. Again, basically it increases our velocity and it increases our ability to do more with the same resources, which ultimately benefits us both on the revenue line and then in a productivity from profit margin and returns on investment.

Speaker #5: So again, basically it increases our velocity, and it increases our ability to do more with the same resources, which ultimately benefits us both on the revenue line and in productivity from profit margin and returns on investment.

Speaker #8: Thank you.

Joe O'Dea: Thank you.

Speaker #1: Our next question comes from Brandon Nutson with Morgan Stanley. Your line is now open.

Operator: Our next question comes from Brandon Knutson with Morgan Stanley. Your line is now open.

Speaker #7: Hi, good morning. Thanks for the question. Within the ABL segment, the independent sales network grew 4% after being flat for the last two quarters.

Brandon Knutson: Hi, good morning. Thanks for the question. Within the ABL segment, the independent sales network grew 4% after being flat for the last two quarters. Can you just talk about what is driving that inflection and kind of split it off between market, which you said is firming, and then independent actions you all are taking to gain share?

Speaker #7: Can you talk about what's driving that inflection, and kind of separate it between the market—which you said is firming—and then the independent actions you all are taking to gain share?

Speaker #5: Yeah, Brandon, welcome. Nice to have you on the independent sales network. I would say that's an indication of us taking share. So we're pretty confident in where our position is across each of these markets.

Neil Ashe: Yeah, Brandon, welcome. Nice to have you. On the independent sales network, I would say that is an indication of us taking share. So we are pretty confident in where our position is across each of these markets. So I say markets because the independent sales network represents 80 independent markets across North America. So, we see that pretty consistently over North America, and it is our view that we are taking share.

Speaker #5: So I say markets because the independent sales network represents 80 independent markets across North America. We see that pretty consistently over North America, and it's our view that we're taking share.

Speaker #7: Great, thank you. And on capital allocation, you guys had $57 million of share repurchases during the quarter. It sounds like you paid off the rest of the QSE debt post quarter.

Brandon Knutson: Great. Thank you. On capital allocation, you guys had $57 million of share repurchases during the quarter. It sounds like you paid off the rest of the QSC debt post-quarter. So now free cash flow going forward, how are you thinking about capital allocation? On the QSC front, can you just talk a little bit about the revenue synergies you have been seeing there and the opportunities you see there? It sounds like the cost level is normalized there. On the revenue side, any color there?

Speaker #7: So, you now have free cash flow going forward. How are you thinking about capital allocation? And then also, on the QSE front, can you just talk a little bit about the revenue synergies you've been seeing there and the opportunities you see?

Speaker #7: It sounds like the cost level is normalized there. So, on the revenue side, is there any color there?

Speaker #5: Yeah, so our capital allocation strategy is very clear: we grow our current businesses, we pursue acquisitions, we increase the dividend, and we repurchase our shares.

Neil Ashe: Yeah. So our capital allocation strategy is very clear. We grow our current businesses, we go through acquisitions, we increase the dividend, and we repurchase our shares. As we look forward, obviously, I believe that organic cash generation is a strategic asset, and it has been a focus of ours and you can see it in our results. That ties back to our overall strategy, which is to build a compounder. So we compound our operating capacity, which then compounds our financial capacity, and you see the impact of that in free cash flow and then more importantly, what we do with that free cash flow.

Speaker #5: So, as we look forward, obviously I believe that organic cash generation is a strategic asset. It has been a focus of ours, and you can see it in our results.

Speaker #5: That ties back to our overall strategy, which is to build a compounder. So, we compound our operating capacity, which then compounds our financial capacity. You see the impact of that in free cash flow, and then more importantly, what we do with that free cash flow.

Speaker #5: So, as we take a step back and think about where Acuity is positioned for the market going forward, and specifically regarding the earlier question about interest rates.

Neil Ashe: So as we take a step back and we think about kind of where Acuity is positioned for the market going forward, and specifically the question earlier about interest rates, our organic cash generation is incredibly valuable, and we can use that to then continue to grow the business. QSC is just a good example of that. We bought a very high-quality asset at a fair price, as we do. We onboarded them into our AIS segment. We normalized their performance with our performance through the introduction of our Better. Smarter. Faster. operating system and their improvement. Then to your question on sales synergies, now we are starting to see end users who recognize that there is only one solution in the marketplace that ties everything together.

Speaker #5: Our organic cash generation is incredibly valuable, and we can use that to continue to grow the business. Q4 is just a good example of that.

Speaker #5: We bought a very high-quality asset at a fair price, as we do. We onboarded them into our AIS segment. We normalized their performance with our performance through the introduction of our Better Smarter Faster Operating System and their improvement.

Speaker #5: And then, to your question on sales synergies, now we're starting to see end users who recognize that there is only one solution in the marketplace that ties everything together.

Speaker #5: So as we tie the data from how the building operates all the way through to what's happening in the building, then we're starting to get customers who say, "I now know where I need to go to centralize each one of those things," because we give them the opportunity to do things that other people don't give them the opportunity to do.

Neil Ashe: So as we tie the data from how the building operates all the way through to what is happening in the building, then we are starting to get customers who say, "I now know where I need to go to centralize each one of those things," because we give them the opportunity to do things that other people do not give them the opportunity to do. So in both of our experiences in operations areas, QSC, and in Distech and Atrius, we have open protocol technologies that come together in a single data layer, which gives our ultimate end users the ultimate power and flexibility to basically do whatever they need to do and to be positioned to do that over time. We are uniquely positioned around that in the marketplace.

Speaker #5: So in both of our both of our experiences and operations areas QSE and in dis tech and Atreus. We have open protocol technologies that come together in a single data layer which gives our ultimate end users the ultimate power and flexibility to basically do whatever they need to do and to be positioned to do that over time.

Speaker #5: And we are uniquely positioned around that in the marketplace. So, increasingly, end users are starting to pull our solutions through the channel, which is how you'll see the revenue combination synergies going forward.

Neil Ashe: Increasingly, end users are starting to pull our solutions through the channel, which is how you will see the revenue combination synergies going forward.

Speaker #7: Thank you. I'll pass it on.

Brandon Knutson: Thank you. I will pass it on.

Speaker #1: Our next question comes from Brian Lee at Goldman Sachs. Your line is now open. Your line may be on mute.

Operator: Our next question comes from Brian Lee at Goldman Sachs. Your line is now open. Your line may be on mute.

Speaker #5: Operator, I guess we have no Brian Lee.

Neil Ashe: Operator, I guess we have no Brian Lee.

Brian Lee: Apologies, I was on mute. Hey, guys. Good morning. You found me. Wanted to just follow up on the last question around kind of the ABL outlook here, Neil. It seems like you guys continue to gain share. Embedded in your flat to low single-digit growth outlook for fiscal 2027, is that still the underlying assumption, the market's kind of broadly flat to down and you're still gaining share? Maybe just kind of dissect what's embedded in that view for ABL specifically.

Speaker #7: Apologies, I was on mute. Hey guys, good morning—you found me. I wanted to just follow up on the last question around the ABL outlook here, Neil.

Speaker #7: It seems like you guys continue to gain share. So, embedded in your flat to low single-digit growth outlook for fiscal '27, is that still the underlying assumption: the market's kind of broadly flat to down, and you're still gaining share? Maybe just kind of dissect what's embedded in that view for ABL specifically?

Speaker #5: Yeah, so on ABL, as Karen indicated, we're guiding to flat to low singles. We do expect the market to be flat to down low singles.

Neil Ashe: Yeah. On ABL, as Karen indicated, we're guiding to flat to low singles. We do expect the market to be flat to down low singles, so that's the underlying assumption in there, and we're taking share and increasing our penetration of the new verticals to drive that, and we're adding some quality performance in our corporate accounts.

Speaker #5: So that's the underlying assumption in there, and we're taking share and increasing our penetration of the new verticals to drive that. We're also adding some quality performance in our corporate accounts.

Speaker #7: Okay, awesome. Helpful. And then, I guess, on the margin front this year, you quoted the investments you made in ABL kind of impacted the margins a bit.

Brian Lee: Okay. Awesome. Helpful. I guess on the margin front, this year you quoted the investments you made in ABL kind of impacted the margins a bit. Does that reverse fully into 2027? Juxtaposing that against a couple of hundred basis points of headwind in AIS, if we try to kind of break out the margin cadence between the two segments, is it sort of ABL improves year-on-year, AIS maybe a bit more sluggish, flattish, given the strong performance it had throughout the year. Is that kind of the way to think about the different trend lines between the two from an operating margin performance standpoint?

Speaker #7: Does that reverse fully into 27? And then, juxtaposing that against the couple hundred bps of headwind in AIS, if we try to kind of break out the margin cadence between the two segments, is it sort of ABL improves year on year, AIS maybe a bit more sluggish, flattish given the strong performance it had throughout the year? Is that kind of the way to think about the different trend lines between the two from an operating margin performance standpoint?

Speaker #5: Yeah. I'll contextualize the direction of travel first and then the specifics for the year second. So on ABL, over time, we will continue to make structural improvements in the business, which will drive gross profit margin, and that will then cascade to operating margin.

Neil Ashe: Yeah. I will contextualize the direction of travel first and then the specifics for the year second. On ABL, over time, we will continue to make structural improvements in the business, which will drive gross profit margin, and that will then cascade to operating margin. That is true this year also. The structural improvements in gross margin we will make this year will be in spite of the flat to low single digits top line, which then cascade to operating profit. The story at AIS is slightly different, which is we already have high gross margin businesses there, high 50, 60, and really the operating margin improvement over time continues from our scaling of those businesses.

Speaker #5: And that's true this year also. So, the structural improvements and gross margin we will make this year will be in spite of the flat to low single digits top line, which then cascades to operating profit.

Speaker #5: The story at AIS is slightly different, which is we already have a high gross margin business—it's in the high 50s, 60%. And really, the operating margin improvement over time continues from our scaling of those businesses.

Speaker #5: So, in 2027, as Karen indicated, over the course of the year, the memory impact will be about a couple hundred basis points. The gross margin line, but we will continue to grow, which will mitigate that impact at the operating profit margin line.

Neil Ashe: In 2027, as Karen indicated, over the course of the year, the memory impact will be about a couple of hundred basis points at the gross margin line, but we will continue to grow, which will mitigate that impact at the operating profit margin line. Think about operating profit margins about flat or slightly growing. However, on a dollar basis, they continue to improve. There was some confusion about this when this happened at ABL, as it related to other supply shocks in the past. The percentage margin here does not matter as much as the continued dollar improvement in margin. At AIS, the dollar margins will continue to scale. We will continue to grow in the mid to kind of the mid-teens.

Speaker #5: So think about operating profit margins as being about flat or slightly growing. However, on a dollar basis, they continue to improve. There was some confusion about this when this happened at ABL, as it related to other supply shocks in the past.

Speaker #5: So the percentage margin here doesn't matter as much as the continued dollar improvement in margin. And so at AIS, the dollar margins will continue to scale.

Speaker #5: We will continue to grow in the mid, kind of the mid-teens. And then, when we don't have this supply shock or when we annualize this supply shock, we'll return to our cadence of margin improvement.

Neil Ashe: Then when we do not have this supply shock or when we annualize this supply shock, then we will return to our cadence of margin improvement. This is just a point in time. Dollars will continue to go up, and the company will continue to be more valuable.

Speaker #5: So this is just a point in time. Dollars will continue to go up, and the company will continue to be more valuable.

Speaker #7: Awesome. Helpful. I will pass it on. Thanks, guys.

Brian Lee: Awesome. Helpful. I will pass it on. Thanks, guys.

Speaker #5: Thank you.

Neil Ashe: Thank you.

Speaker #1: Thank you. I'm showing no further questions in the queue at this time. I'd like to turn the call back to Neil Ash for any closing remarks.

Operator: Thank you. I am showing no further questions in queue at this time. I would like to turn the call back to Neil Ashe for any closing remarks.

Speaker #5: Thank you all for joining us today. I always try to reflect at the end-of-year conference call as we look forward to where we are strategically and where we're going.

Neil Ashe: Thank you all for joining us today. I always try and reflect at the end of year conference call as we look forward about where we are strategically and where we are going. It is hard to not be enthusiastic about where Acuity is positioned now. We have the leading and best-performing lighting company in the world, with ample opportunity ahead. I am excited about Ruud's leadership and impact on that business. At the same time, we continue to scale AIS both organically and inorganically. We are solving problems for end users in the marketplace better and in different ways than anyone else can. I am excited about their continued growth and confident in where we can go. Then finally, we are building a compounder, where we compound our operating capacity through our values, through how we create value for Better. Smarter. Faster., and our human-agentic platform.

Speaker #5: It's hard not to be enthusiastic about where ACUITY is positioned now. We have the leading and best-performing lighting company in the world with ample opportunity ahead, and I'm excited about Roo's leadership and impact on that business.

Speaker #5: At the same time, we continue to scale AIS both organically and inorganically. We're solving problems for end users in the marketplace better, and in different ways, than anyone else can.

Speaker #5: And I'm excited about their continued growth and confident in where we can go. And then finally, we're building a compounder, where we compound our operating capacity through our values, through how we create value—through better, smarter, faster—and our human agentic platform.

Speaker #5: And that is, in turn, compounding our financial capacity, and we've demonstrated the ability to use that financial capacity to create value. So, we appreciate your interest in Acuity, and we look forward to catching up with you again in another quarter.

Neil Ashe: That is then in turn compounding our financial capacity. We have demonstrated the ability to use that financial capacity to create value. So we appreciate your interest in Acuity, and we look forward to catching up with you again in another quarter.

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