ACUITY BRANDS INC

Previous wording

The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness, and other key financial information of Acuity Brands, Inc. (referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries as of November 30, 2023 and for the three months ended November 30, 2023 and 2022. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report. Also, please refer to Acuity Brands, Inc.'s Annual Report on Form 10-K for the fiscal year ended August 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on October 26, 2023 (“Form 10-K”).

Current wording

The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness, and other key financial information of Acuity Brands, Inc. (referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries as of February 29, 2024 and for the three and six months ended February 29, 2024 and February 28, 2023. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report. Also, please refer to Acuity Brands, Inc.'s Annual Report on Form 10-K for the fiscal year ended August 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on October 26, 2023 (“Form 10-K”).

Previous wording

We have numerous sources of capital, including cash on hand and cash flows generated from operations, as well as various sources of financing. Our ability to generate sufficient cash flows from operations or to access certain capital markets, including banks, is necessary to meet our capital allocation priorities, which are to invest in our current business for growth, to invest in mergers and acquisitions, to maintain our dividend, and to make share repurchases. Sufficient cash flow generation is also critical to fund our operations in the short and long terms and to maintain compliance with covenants contained in our financing agreements.

Current wording

We have numerous sources of capital, including cash on hand and cash flows generated from operations, as well as various sources of financing. Our ability to generate sufficient cash flows from operations or to access certain capital markets, including banks, is necessary to meet our capital allocation priorities, which are to invest in our current business for growth, to invest in mergers and acquisitions, to pay a dividend, and to make share repurchases. Sufficient cash flow generation is also critical to fund our operations in the short and long terms and to maintain compliance with covenants contained in our financing agreements.

Previous wording

Our cash position at November 30, 2023 was $513.3 million, an increase of $115.4 million from August 31, 2023. Cash generated from operating activities and cash on hand were used during the current year to fund our capital allocation priorities as discussed below.

Current wording

Our cash position at February 29, 2024 was $578.9 million, an increase of $181.0 million from August 31, 2023. Cash generated from operating activities and cash on hand were used during the current year to fund our capital allocation priorities as discussed below.

Previous wording

We generated $190.0 million of cash flows from operating activities during the three months ended November 30, 2023, compared to $186.6 million in the prior-year period, an increase of $3.4 million. This increase was due primarily to increased pre-tax income, partially offset by lower collections from customers.

Current wording

We generated $292.6 million of cash flows from operating activities during the six months ended February 29, 2024, compared to $306.4 million in the prior-year period, a decrease of $13.8 million. This decrease was due primarily to more favorable operating working capital reductions in the prior year as well as an increase in income tax payments associated with higher profit, partially offset by higher pre-tax income.

Previous wording

At November 30, 2023, our outstanding debt balance was $495.7 million, which consisted solely of our Unsecured Notes, compared to our cash position of $513.3 million. We were in compliance with all covenants under our financing arrangements as of November 30, 2023.

Current wording

At February 29, 2024, our outstanding debt balance was $495.9 million, which consisted solely of our Unsecured Notes, compared to our cash position of $578.9 million. We were in compliance with all covenants under our financing arrangements as of February 29, 2024.

Previous wording

At November 30, 2023, we had additional borrowing capacity under the Revolving Credit Facility of $596.2 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less outstanding letters of credit of $3.8 million issued under the facility. As of November 30, 2023, our cash on hand combined with the additional borrowing capacity under the Revolving Credit Facility totaled $1.1 billion.

Current wording

At February 29, 2024, we had additional borrowing capacity under the Revolving Credit Facility of $596.2 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less outstanding letters of credit of $3.8 million issued under the facility. As of February 29, 2024, our cash on hand combined with the additional borrowing capacity under the Revolving Credit Facility totaled $1.2 billion.

Previous wording

Our capital allocation priorities are to invest in our current business for growth, to invest in mergers and acquisitions, to maintain our dividend, and to make share repurchases.

Current wording

Our capital allocation priorities are to invest in our current business for growth, to invest in mergers and acquisitions, to pay a dividend, and to make share repurchases.

Previous wording

We invested $14.6 million and $18.2 million in property, plant, and equipment during the three months ended November 30, 2023 and 2022, respectively. We invested primarily in new and enhanced information technology, equipment, and facility improvements in fiscal 2024.

Current wording

We invested $29.0 million and $35.6 million in property, plant, and equipment during the six months ended February 29, 2024 and February 28, 2023, respectively. We invested primarily in new and enhanced information technology, equipment, and facility improvements in fiscal 2024 to date.

Previous wording

Refer to the Acquisitions and Divestitures footnote of the Notes to Consolidated Financial Statements for more information.

Current wording

We seek opportunities to strategically expand and enhance our portfolio of solutions. Refer to the Acquisitions and Divestitures footnote of the Notes to Consolidated Financial Statements for more information.

Previous wording

We sold our Sunoptics prismatic skylights business in November 2022 and recognized a pre-tax loss of $11.2 million on the sale of this business.

Current wording

There were no divestitures during the first six months of fiscal 2024. We sold our Sunoptics prismatic skylights business in the first fiscal quarter of 2023 and recognized a pre-tax loss of $11.2 million on the sale of this business.

Previous wording

We paid dividends on our common stock of $4.1 million ($0.13 per share) and $4.3 million ($0.13 per share) during the three months ended November 30, 2023 and 2022, respectively. All decisions regarding the declaration and payment of dividends are at the discretion of the Board of Directors (the “Board”) and are evaluated regularly in light of our financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant.

Current wording

We paid dividends on our common stock of $8.8 million ($0.28 per share) and $8.5 million ($0.26 per share) during the six months ended February 29, 2024 and February 28, 2023, respectively. All decisions regarding the declaration and payment of dividends are at the discretion of the Board of Directors (the “Board”) and are evaluated regularly in light of our financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant.

Previous wording

During the first three months of fiscal 2024, we repurchased 0.3 million shares of our outstanding common stock for $50.0 million. Total cash outflows for share repurchases during the three months ended November 30, 2023 were $48.2 million. We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash. As of November 30, 2023, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 0.9 million shares.

Current wording

During the first six months of fiscal 2024, we repurchased 0.4 million shares of our outstanding common stock for $67.6 million. Total cash outflows for share repurchases during the six months ended February 29, 2024 were $67.8 million. We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash. On January 25, 2024, the Board approved an increase of three million shares to the maximum number of shares that may yet be repurchased under the share repurchase program. As of February 29, 2024, 3.9 million shares remained available within the program to repurchase.

Previous wording

Net sales for the first quarter of fiscal 2024 decreased $63.2 million, or 6.3%, to $934.7 million, compared with $997.9 million in the prior-year period due to a decline in sales within our ABL segment, partially offset by higher sales within our ISG segment. The fiscal 2023 acquisition of KE2 Therm and divestiture of our Sunoptics business did not have meaningful impacts on consolidated net sales for the first quarter of fiscal 2024.

Current wording

Net sales for the second quarter of fiscal 2024 decreased $37.7 million, or 4.0%, to $905.9 million, compared with $943.6 million in the prior-year period due to a decline in sales within our ABL segment, partially offset by higher sales within our ISG segment. Acquisitions did not have a meaningful impact on consolidated net sales for the second quarter of fiscal 2024.

Previous wording

Gross profit for the first quarter of fiscal 2024 increased $11.9 million, or 2.9%, to $428.4 million, compared with $416.5 million in the prior-year period, and gross profit margin increased 410 basis points to 45.8% from 41.7% compared with the prior-year period. Our gross profit increased compared with the prior period due primarily to favorable material and import costs, partially offset by higher labor, overhead, and quality costs as well as the fall through of the net sales decline.

Current wording

Gross profit for the second quarter of fiscal 2024 increased $5.7 million, or 1.4%, to $412.4 million, compared with $406.7 million in the prior-year period, and gross profit margin increased 240 basis points to 45.5% from 43.1% compared with the prior-year period. Our gross profit increased compared with the prior period due primarily to favorable material and import costs, partially offset by the fall through of the net sales decline as well as higher quality, labor, and overhead costs.

Previous wording

Operating profit for the first quarter of fiscal 2024 was $132.9 million (14.2% of net sales), compared with $108.9 million (10.9% of net sales) for the prior-year period, an increase of $24.0 million, or 22.0%. The increase in operating profit was due primarily to the increase in gross profit, partially offset by lower operating expenses.

Current wording

Operating profit for the second quarter of fiscal 2024 was $118.1 million (13.0% of net sales), compared with $111.5 million (11.8% of net sales) for the prior-year period, an increase of $6.6 million, or 5.9%. The increase in operating profit was due primarily to the increase in gross profit.

Previous wording

Net income for the first quarter of fiscal 2024 increased $25.7 million, or 34.3%, to $100.6 million, from $74.9 million reported for the prior-year period. Diluted earnings per share for the first quarter of fiscal 2024 increased $0.92, or 40.2%, to $3.21 compared with diluted earnings per share of $2.29 for the prior-year period. This increase reflects higher net income as well as lower outstanding diluted shares.

Current wording

Net income for the second quarter of fiscal 2024 increased $6.0 million, or 7.2%, to $89.2 million, from $83.2 million reported for the prior-year period. Diluted earnings per share for the second quarter of fiscal 2024 increased $0.27, or 10.5%, to $2.84 compared with diluted earnings per share of $2.57 for the prior-year period. This increase reflects higher net income as well as lower outstanding diluted shares.

Previous wording

ABL net sales for the first quarter of fiscal 2024 decreased $70.7 million, or 7.5%, to $876.4 million, compared with $947.1 million in the prior-year period. Sales within the ABL segment decreased due to lower net sales across all channels except the retail sales channel.

Current wording

ABL net sales for the second quarter of fiscal 2024 decreased $47.3 million, or 5.3%, to $843.5 million, compared with $890.8 million in the prior-year period. Sales within the ABL segment decreased due to lower net sales across all channels. The second quarter of 2023 benefited from working through an elevated backlog.

Previous wording

ISG net sales for the first quarter of fiscal 2024 increased $7.4 million, or 13.0%, to $64.2 million, compared with $56.8 million in the prior-year period. Sales within the ISG segment increased due to the acquisition of KE2 Therm, price increases, and favorable product mix. ISG operating profit was $5.3 million for the first quarter of fiscal 2024, compared with $7.7 million in the prior-year period, a decrease of $2.4 million. This decrease was due primarily to increased employee-related costs and professional fees, partially offset by higher net sales.

Current wording

ISG net sales for the second quarter of fiscal 2024 increased $9.9 million, or 17.0%, to $68.1 million, compared with $58.2 million in the prior-year period. Sales within the ISG segment increased due primarily to higher volume and the acquisition of KE2 Therm. ISG operating profit was $9.1 million for the second quarter of fiscal 2024, compared with $6.3 million in the prior-year period, an increase of $2.8 million. This increase was due primarily to contributions from higher net sales, partially offset by higher employee-related costs.

Previous wording

First Quarter of Fiscal 2024 Compared with First Quarter of Fiscal 2023

Current wording

First Six Months of Fiscal 2024 Compared with First Six Months of Fiscal 2023

Previous wording

Selling, distribution, and administrative expenses (“SD&A”) expenses for the first quarter of fiscal 2024 were $295.5 million, compared with $300.7 million in the prior-year period, a decrease of $5.2 million, or 1.7%. The decrease in SD&A expenses was due primarily to lower commissions, freight costs, and amortization, partially offset by higher employee-related costs. Amortization expense of definite-lived intangibles decreased in fiscal 2024 as we recorded $4.0 million of accelerated amortization for intangibles associated in fiscal 2023 with certain brands that were discontinued.

Current wording

SD&A expenses for the six months ended February 29, 2024 were $589.8 million compared with $595.9 million in the prior-year period, a decrease of $6.1 million, or 1.0%. The decrease in SD&A expenses was due primarily to lower commissions and freight costs associated with the decline in net sales as well as decreased amortization, partially offset by increased employee-related costs.

Previous wording

We recognized special charges of $6.9 million during the first quarter of fiscal 2023. Please refer to the Special Charges footnote of the Note to Consolidated Financial Statements for further details.

Current wording

We recognized special charges of $6.9 million during the first six months of fiscal 2023. Please refer to the Special

Previous wording

Interest expense, net, was $0.9 million and $6.6 million for the first quarter of fiscal 2024 and 2023, respectively. The decrease in net interest expense was due to higher investing rates on our interest-bearing cash and cash equivalents as well as lower average short-term borrowings outstanding.

Current wording

Interest expense, net was $0.8 million and $12.3 million for the six months ended February 29, 2024 and February 28, 2023, respectively. The decrease in net interest expense was due to higher interest bearing cash and cash equivalent balances, higher investing rates on those balances, and lower average short term borrowings outstanding compared to the prior year.

Previous wording

We reported net miscellaneous expense of $1.1 million and $9.1 million for the first quarter of fiscal 2024 and 2023, respectively. This year-over-year decrease is due primarily to the recognition of an $11.2 million loss on the sale of our Sunoptics prismatic skylights business in fiscal 2023, partially offset by the impact of foreign currency-related items compared to the prior year.

Current wording

We reported net miscellaneous expense of $1.7 million for the six months ended February 29, 2024 and $5.4 million for the six months ended February 28, 2023. This year-over-year decrease was due primarily to the recognition of an $11.2 million loss on the sale of our Sunoptics prismatic skylights business in fiscal 2023, partially offset by the impact of foreign currency-related items compared to the prior year.

Previous wording

Our effective income tax rate was 23.1% and 19.6% for the first quarter of fiscal 2024 and 2023, respectively. This decline was due primarily to the recognition of higher favorable discrete items in the prior year.

Current wording

Our effective income tax rate was 23.6% and 22.0% for the six months ended February 29, 2024 and February 28, 2023, respectively. This increase was due primarily to the recognition of higher favorable discrete items in the prior year.

Previous wording

Operating profit for ABL was $143.8 million (16.4% of ABL net sales) for the first quarter of fiscal 2024, compared with $118.1 million (12.5% of ABL net sales) in the prior-year period, an increase of $25.7 million. The increase in operating profit was due primarily to improved profitability on lower sales, partially offset by increased employee-related costs. During the first quarter of fiscal 2023, we recorded $6.9 million of special charges and $4.0 million of accelerated amortization expense for intangibles associated with certain brands that were discontinued.

Current wording

Operating profit for ABL was $269.8 million (15.7% of ABL net sales) for the six months ended February 29, 2024 compared to $241.7 million (13.2% of ABL net sales) in the prior-year period, an increase of $28.1 million. The increase in operating profit was due primarily to improved profitability on lower sales as well as lower sales-related costs, such as commissions and freight to customers. During the first six months of fiscal 2023, we recorded within ABL $6.9 million of special charges and $4.0 million of accelerated amortization expense for intangibles associated with certain brands that were discontinued.