AYI - Earnings call transcript Q3 2018

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Operator

Good morning and welcome to Acuity Brands' fiscal 2018 third quarter financial conference call. After today's presentation, there will be a formal question-and-answer session. [Operator Instructions]. Today's conference is being recorded.

If you have any objections, you may disconnect at this time.

to like would I introduce Mr. Now Senior Smith, Vice President, Secretary. and Treasurer Dan you begin. Sir, may

Dan Smith

and me Officer. Nagel, Thank our morning. President and good you With Executive our third and Executive Vice results Ricky President Reece, fiscal Chief today quarter are Chairman, Vern Financial our and Chief Officer XXXX discuss to

events such we would to that remind everyone future SEC that We our filings are differ materially in on contained future call statements to differ conference could identify or projections our website or Please forward-looking XX-Q this of most like Such press today's call, refer may that release, performance which from statements. webcasting those actual to results today's at make projections may in or important acuitybrands.com. and the our I involve statements financial and results recent during uncertainties forward-looking regarding actual XX-K company. factors materially. risks cause

to Now, let me Nagel. turn over this Vern call

Vern Nagel

$X.XX morning million the operating ago on many Good $XXX.X this compared for results later ago quarter period. be adding provide in sales year add-backs highlights both can of I as periods key then was for back operating $X.XX, the your the $XXX.X for already these X%, profit market. in comments profit profit were to a period. decrease like diluted compared performance Overall Dan. comparable from continued adjusted $X.XX the charges, XXXX. compared that was as of our million was few the Ricky period. the conditions, XX% year one were would basis Adjusted questions. period. up XX.X%, few Net almost detail ago will market our more There points for later third we ago Adjusted quarter $XXX.X solid, per the the was Ricky with have a the for the to call, in quarters million the would $XXX up know but will necessary well soft Reported you particularly items, certain and In adjustments year and share Reported with diluted current other make a profit with call. make the third in will operating in everyone. I of ago with million, year XXXX compared of explain backdrop year ago was in I against adjusted quarter share special a was compared earnings $XXX.X as quarter comments Thank of including to see margin period. earnings you year answer million between like and of XXX operating seen per lighting with the Ricky results period.

For operating was the the million net million nine period. $XXX months year first fiscal activities compared of XXXX, cash provided ago provided $XXX the in by with

and million our this year, spent we million two $XXX acquisitions So repurchase million for of two far shares $XXX stock. to have

call, the we into bank million June facility enhancing our as credit entered with further will in flexibility. on financial Ricky new addition, XX later our a In explain $XXX group

from and product XX% impact our of net over X% sales luminaires driven key details infrastructure sales greater and from X% customers as by specific volume growth projects. as and foreign mix, featured was products the more by third channels nonresidential volume contributors net alternatives form impacted smaller mix certain growth increased increase LED sales Net this and both on than were were the changes of well. in to ago shipments products compared popular by which sold. LED prices reflecting of for Atrius-based our record, due applications our favorable larger in certain for some soft. C&I primarily slightly you well and earlier. at overall to sales in based quarter. period channel the mix, fixtures almost volume demand up make projects shipments ago our offset experienced geographies. total of non-fixture acquisitions partially products approximately sales high year channel were projects, of in with of increase more in up and Sales for a most the in product to exchange pricing an approximate included the two-thirds channels rates, luminaires which, in includes basic, quarter largest Looking larger to know, primarily We Sales for and included solutions down related Further, The primarily an the primarily commercial changes driven as unfavorable remained mix, and X% quarter and which to by period, substitutions year and in utility factors, where over noted lesser sale lower to with as primarily unfavorable declines net luminaires, sales price competition on priced for certain lower channel

offered and new includes these our and are quarter, forces, seemingly certain features in combat Contractor the that of we of While lesser where portfolio featured important. impact to incorporating substitution effectively changes net channel in more prices and it's portion products this primarily was impact less product To and not continue portfolio to for of our We product in degree accelerate many the performance of sold, quarter lesser products we in slightly products possible the this at and consumers appeal a market, to for expanded mix. served changes customers points sales profitably competitive North which we America welcome branded changes products on was from with price expansion and to offer mix growth. due the and to demand price of compete precisely portfolio, innovative, we previous organizations, data determine markets relaunched in Based market more estimate Select choices can believe to information several the separate product slightly the believe in attributes residential our affordable of lighting but that this negative these positive we commercial great new market solutions, have by projects. would and overall differentiation, compared quarter, Lithonia relief both quarters will this a various prefer believe pro for With construction collection others. renovation forecasting even their lighting reliable to we after and that and to Juno

to more with solutions and sales innovative particularly We many our to growth better have soft to American forces building a the us as the holistic believe as backdrop in X% of management the in diversification competitive and stark the environment. Our this quarter, our allowed gain growth lighting and share of strength and price North channel net market strategies current market overall well America. almost against North in and product overall contrast luminaire of the sales continue rate of to stands new, serve customers our market

As the key I call, grow. for certain verticals, continues true demand Atrius noted earlier luminaires in enabled to particularly where this our is at

mix of the for profitability tepid impacted impact third overall Our by from in while prior-year price market market and They certain the in below measures quarter continued noted conditions, portions the performance. solid, demand the were changes were earlier. given

certain sales. and margin reported the was adjusted of profit quarter compared gross the a in certain increased items, the margin price period. year as the decline down ago was the profit higher by and points in unfavorable gross pricing particularly approximately compared certain points to percentage driven a to improvements, and decrease mix productivity the Our was offset primarily margin ago and partially million ago lesser year Adjusted for margin operating well. by down XX degree the adjusted ago million, costs year contributed adjusted a well and factors operating components. decrease for $XX.X X% third in gross margin adjusted profit These period commodity period. operating profit from year administrative distribution of basis was for profit and $XXX.X XX.X%, with the for sales both basis impact XX.X%, the higher in profit input in higher in adjusted period, due steel over with based profit mix, oil changes adjusted profit Adjusted as related for channel primarily while as the quarter products XXX The dollars the as margin same gross to quarter selling, of volume and expenses, gross margin

quarter, of Next, costs, an basis adjusted year expense, the in primarily net increase were ago up and with third Adjusted XXX commission year percentage to the including support greater XX.X% period. acquisitions, rising ago compensation expenses and to of a an period. ago SDA increase period. $XX.X healthcare with increase the of as increase SDA the million SDA related the the The higher primarily adjusted in and expense was higher year from points to associates sales compared of was compared freight costs in due sales number net due employee expense

also associated in professional, certain an electronic components. shortages to testing actions product and experienced fees for certification with We outside increase address industry taken

remaining expense and sales ago accounted volume, increase more SDA related impact the period. total this to in freight costs than the greater higher year in of Excluding increase of due the compared expense commission employee with quarter half for the little a

our inflation. contributing adjusted We in in related XXXX to to was An fiscal expect compared sequential almost of quarter tight as up this basis continue labor remain of variable contribution point quarter rise margin employee to a this second fourth interesting the the to higher wage note, quarter level cost markets XX%. on a

the offset on period. tax due decline income diluted $X.XX the The lower partially with ago the and adjusted quarter. in by EPS repurchases year for compared was stock year, reported outstanding impact to shares average primarily Our a favorable the operating increase this in past the to was $X.XX profit law due in

the a accomplishments like call Ricky, to to turn I over this highlight I few would quarter. Before important

term. front, positive we strategic make what to growth over continued setting be profitable the will strong technology for we long and On stage the believe the strides,

Tier X for sales over sales XX% we our of While represent data solutions than categories quarter and still X up holistic sales integrated tiered were imprecise, total believe net far our and more this this so encompassing in solutions our our year. XX% is

deployments driven believe From Also lighting buildings. institutional applications. further customers This expansion As and commercial these the systems the wireless the Tier the their from perspective, primarily and types lighting our quarters. comprehensive as verticals, applications based implementation commitments programs industry Also, public quarter, and opportunity accelerating well important to of X control Tier shipments expand demand Atrius Atrius-based emergency to the lighting leadership X the future just we our installed of Atrius-enabled IoT our retailers introduced of acquisition was IoT well set. beyond control other the programs believe recurring in number pilot AIR. wired of growth network customers combined services, power nLight accelerated systems in in U.S. next revenues primarily equipment completed as acquisition by in X of system most as will we for platforms with moving Atrius Tier of our and for meaningfully will us for category. current as based this luminaires, certain IOTA, continued base have from afford the these has enhance including lighting the We industry-leading a orders largest solutions and We of increased market active expand. as our feature-rich and lighting key vertical available. the key X and we Acuity several luminaires in leader includes in to of greater commercial generation enabled sale IoT-enabled reminder, includes a and The our solution while of

prevailing moment. These with have considering actions initiatives streamline conditions financial on initiated focus our as as our additional a driving improve and and further market comments in growth costs allow reduce Ricky to consistent this These opportunities. number with accelerate this investments enhance past strategies. in areas performance operations growth actions of well initiatives Lastly, operating higher quarter and long-term will taken a our we will our productivity. on us our to to were

more capabilities these maniacally are on who of while about and the our We of our industry-leading associates the results I customers. have because resolve needs our of been the and solving Ricky? and providing now like create able talk to dedication will make strategies for supporting serving, few expectations a construction our would Ricky focus turn comments markets of I XXXX. to regarding growth the in balance over calendar the for I the future our to before call. call later focused

Ricky Reece

good and morning Vern you everyone. Thank

results to of intangible results share-based and find to exclude As We reconciliation be items special for Vern acquired our useful we we measures XXXX measures some excess operations. comparability adjustments transparency and earlier, add-back of the adjustments quarter the results the helpful which we for expense will your and for for these mentioned expense, visibility year of payment both related our third performance. amortization fiscal of think non-GAAP very assets, had greater and inventory to third earnings XXXX, find impact closures. streamlining in for and quarter order facility GAAP a comparable. in the XXXX. of to Adjusted of enhanced in release, fiscal providing adjusting the you results this provide detailed items, acquisition provide In activities analysis non-GAAP these related We into charges our believe XXXX

compare our a other technology our in similar especially of company, many so make industry. companies will you our to performance help it addition, In peer companies, as we adjustments, more public become as of

a we in third consists planned During facilities employee and the charge certain severance primarily consolidation the XXXX, of of of charge million, workforce. The special benefit related quarter reduction associated costs. recognized to of and pretax $X.X special fiscal primarily employee related

also third not quarter located material be a will facilities of cost activities where reserve We during cease inventory one it the the relocate $X.X for effective because to at inventory. to recorded will charge that million production raw

to terminations the of expect and costs We future with facilities, lease the incur early periods attributed primarily cost. additional moving to associated in closing

support compared annual improved implemented, savings these growth as effective the to in drive The activities XX.X% third tax actions, was of The profitability. the well XX% quarter We the savings charge. the expect as be opportunities with once special the for to lower Tax law tax reinvested tax to discrete from XX% that in and before amount quarter. to exceed into will fully XXXX to The XX% the fiscal rate streamlining will of Cuts XXXX. items, due last for We currently prior-year remainder the rate blended primarily signed was for effective U.S. estimate approximate Jobs and December. rate, XX% our Act XX% fiscal income higher

since X, an ago As these benefiting and engineered compared ended for Acuity, Engineering, impact by and estimates, flow. passage highly paid of impact have new lower date by of current increase the may not the material. from tax internationally. of of rates million due will on company operating tax headquartered May other months legislation in things, law tax and our the to during of accounting possibly IOTA and reflect, emergency million taxes that XXXX, and make changes cash legislation. flow On IOTA generated guidance flow credit, in made, the statements expansion in interpretations operating and or of preliminary support payables, power amounts requirements, during was borrowings cash are increase using Operating of cash the decrease the inventory earnings positive of primarily issued new XX, U.S. acquisitions, XXXX. with lower a acquisition to ended projects This The in XX, XX, meaningful repurchase product significant was At the may The to may Arizona. during the was the and August as financial The less acquired period, products for to $X capital, $XXX.X in cash months assumptions in during XXXX accounts the and had payments institutional on among $XXX.X compared actions future due the lighting fiscal has the a invest nine in primarily shares stock, the year to differ increase related IOTA's plus nine as period. working of year-to-date income $XXX.X company $XXX line to materially cash the Fiscal repurchased channel. million. May lowering lower be included result Tucson, common strong home increase to variable approximately and with corporate year to The under of and channel, a the corresponding We $XXX.X commercial defined both XXX,XXX the provided by offset acquisition to U.S. net were operations. payments May the by from receivables to XXXX for due build customer thus our for dividends, showroom $XX.X we first hand manufactures activities we of equipment consolidated results pay primarily goods applications, $XXX.X available lower balance same due operating XXXX, cash offset in during in May XX, and cash million decreased launches ago plant inventory XXXX. used finished We two and center up period XXXX. flow working cash mostly for we third compensation was equipment capital partially months in payable fund fiscal have repurchased incentive shares and inventory from million million, the the of million. million nine in quarter decrease a increase equivalent accounts taxes. committed million

have repurchase under Board X.X remaining authorization. million current We shares our share

Our investment XXXX, XXXX. X.X% five-year banks invest to million million expenditures the facility. with net for loan five-year us million agreement a of a a the of nine We unsecured unsecured new was facility in fiscal sales decrease entered fiscal June and in of $XXX credit that XX, term XXXX, months draw of syndicate On million, $XX into in capital revolving expect with expenditures capital provides delayed $XXX we credit a a compared approximately prior $XX.X currently year. with

XX, Our total debt outstanding was $XXX May million at XXXX.

which XXXX X, significant until June under do credit strong current at flexibility net Vern. XXXX term additional XX.X% shares capital at repurchase $XXX.X which clearly and to best We shareholder had remain to turn facilities, million and I the not enjoy We XX.X%. of will was XXXX. and XX, of capitalization our capacity X.X our to loan borrowing generation stock May debt and July Thank to and value. you was expire debt continue program to cash financial million Our to seek the enhance repurchase of available new will accommodate for use back it strength

Vern Nagel

Thank you performance drive in lighting regarding Ricky. Current term long-term management while our Nonetheless, create conditions for long to continuing the we challenging a market in attractive opportunities. to optimistic term to invest short are financial continues environment future. industry

to in so done long-term. capabilities high Our many and actions while costs over have continuing believe we areas improve this invest performance, quarter growth continue potential reduce to taken to our were can we financial our optimize the

We with trade for softness are for often in the pressures pricing of including of the key have serve. to year construction hand, reasons weak cited were which among single periods. improved three the conditions ago regarding with skilled policies, others, about slightly On of compared lack one end previous asked data and suggests low been markets some certain the products. this and products priced featured market alternative lower less U.S. current the nonresidential vitality uncertainty end overall growth substitutions labor, activity, market Many compared down we this quarter that digits lighting quarters, the rate markets

backlogs continue optimism hand, other channel believe vast we and we pull while customer future from be our trades for busy to the to we the On prospects majority is are the favorable. varying the partners to growth. all hear continue and to speaking, and Generally guarded of regarding degrees, continue this true base

leading the forecasting pressures recent balance tariff from to to of encouraging cautious actions. third-party we XXXX, trends from customers and that increasing in projects due of we market continue impact remain including indicators, see our for favorable year Nonetheless, inflationary large reports are expectations certain set to the organizations. hear for some release calendar As see

customer's to America. construction of lumpy primarily most and expand, outperform sales X within and expect to markets though be cycles. of overall would luminaires new renovation because serve, Tier our and and we the we we of important, X rate at the North Further, unpredictability categories I to Atrius-based like growth will continue the and timing this emphasize, in the times of continue believe our will However to

in influenced products opportunities relaunch and and products for portfolio growth sold substitutions market topline at to of more the though believe we alternatives Select will the by components components basic, decline decelerating costs, of other growth pressuring continue while costs Next, in for profitability. steel certain including we portion believe featured continue, particularly certain pace, caused price costs our market. certain certain as and recently lower channels, priced due the that market we tight especially which this related prices, The lesser through for portions to enacted primarily to and continue as lighting product were our profitable see compensation done to actions increase. of certain to costs, of well Contractor LED by tariffs will being commodity the a Further, enhance other taken certain other are will employee inflation labor

a a Tier believe Our adjusted but necessary is XX.X%. net quarter growth in are percentage costs platforms. as that investment of SDA high our was driving this this sales We bit the still X percentage and is of X reflective

these rising expect initiatives announced costs some of of this of and these timing including increased improvements impact to programs of reduce product streamlining initiatives, which pricing to we lag implementation ongoing announced other might the We actions timing costs, costs. productivity overhead of the our these and the certain though the in quarter, mitigate

profitability. by and striving in level components and and product commodity Through margin influenced factors sales Additionally, pricing several continuous is profit efforts, volume, to our improvement gross costs, improve including our channel innovation, our are mix. sales changes always market we

the several as over we lastly, we revenues system execute gains our typical for strategy, any improve gross particularly believe our will acceleration quarters expect our solutions newest improvement and mix and for of manufacturing margins as nLight we commercial for products that However, margin solutions as to our as in larger particularly realize to solution experience demand, become control once next in tiered as introduction Also, occur, our well projects. Atrius-based we evolves a to of meaningful the an our need portion and meaningful efficiencies. market we more our

of are to currency unpredictable. continue impact exchange fluctuations, we rate leery which be the Next, foreign of

growth rates to be very leverage our we to products driven markets overall topline cost garner our focus improve fixed our profitability. to of solution execute sold primarily additional achieve is clear, incremental to mix the ability to as outperform to the we our growth strategy to infrastructure solutions our of improve by the margins and So serve, targeted tiered and continue

excited of focused the IoT are opportunities and on in we we the platform building holistic platform Tier very growth and and is uniquely optimization by long-term of Acuity Atrius The early X software our to of already solutions. of to the Lastly, and potential full many our the management expansion data world targeted high of these including and believe positioned strong by our take stages Atrius X enhance is platform, advantage opportunities. lighting, development

noted is opportunities As several strategy an part and resources. of the to our we integrated implementation and solution calls, of in This meaningfully our the have our overall all integral conference last tiered world focus interconnected takes participate in strategy.

industry we affording competencies, to our over the opportunity core great long-term expand in because fast to excel changing We enhance the today see are and our us investing opportunity. future

enormous As continued importantly which we more in opportunities is effective the more I efficient of the lighting solutions. before, installed construction the systems said significant of the to for market management potential over and have the to and related because as size industry base, new believe and next as decade building well growth lighting have experience the conversion the

the and with that that, of for exciting will company's entertain automation we both and long-term these industries. base. regarding as along you. we we participate well market in growing profitable are fully construction lead solutions building to Thank Therefore value-added With the and the have. As particularly installed prospects technology remain lighting in Atrius market platform, to continued bullish our we the the in bring to leader leader positioned solutions new questions conversion any growth you more and a

Operator

Instructions]. [Operator

question Brian comes Goldman first Lee with from Sachs. Our

You ahead. go may

Brian Lee

Tier taking Hi just the X, in start sales. the for questions. guys. off, X big result Maybe to Tier Thanks

in quarters. mentioned large a The that strength best pretty to the that to in driven kudos have in year prepared you past you off category. you growth Tier Also, for this the this remarks? products and the seen So the we calendar the result is to a lumpy on of infrastructure Just over in projects was that thinking are in all? by at trying mentioned, guys particular big mostly few back that. XX% was half acceleration Was if Vern, that X, the then growth result group the year, as of you about of Tier quarter's for, it how X a for and what get moderates you alluded sort sense utility

Vern Nagel

solutions and solutions. our them interconnected we the So luminaires to are growth more more their these benefit strategic savings, this what of we Atrius-based assets, Tier of as really making opportunity customers as powerful our energy of energy be an well as asset, really future advantage of the really of not by only recognize property are mean solutions taking future but part a Tier building their transforming how X upgrades, they as both light quality expense, as and assets, and to their potential The management/lighting really is. view X that the more capabilities what is the and continue can potential experience to business a

for tend We see greatly. quarter, quarter-by-quarter in varies a various expansion are it the types of customers all on cycle other see retail, look more because we The these So we as public growth at construction basis analysts expansion to of to basis. at an things luminaires. on looking in this say, for annual we these spaces you continue everyone,

increments that quarter Yes, I but more at or terrific growth we not quarter this and are And annual be growth to backlog experiencing look and strong the full categories was look overall we Acuity. rate that year, this full so, continue great was favorable the continues at for as yes, these if expect growth necessarily we quarter-by-quarter. in

Brian Lee

large could, that that the projects? the what shrink of expect just you Ricky, on saw big you you two guys. the given timing there, quickly give composition moving have you fairly increase enough. if going to here quarter what concentrated in wondering that am payables persist up I And pieces, the and Okay. balance And commentary some the quarter how then inventory trend near-term this utility on was the projects the build, any Fair just And moving those do the then infrastructure drove sheet, quickly you Thank point, the forward? well? color maybe us and as were the should on or in on

Vern Nagel

question. infrastructure So Ricky, let take me the

We are to by and infrastructure very pleased community. solutions and sales forces bringing the utility excited

great We products. have

we our have are sales that great capabilities customers. those to differentiating solutions. forces We And have great

area. that forward. So we we positive And to continue expect to would we see continue go as growth a as that

Ricky Reece

And as on primarily our on inventory expand channel. Brian, it's home center inventories, we Yes. we as in showroom finished balance and area base sheet, increased goods the the customer and increase, the

we are up into of load as we these bases. customer inventory some building new So

launch and the families line as growth their is of corporate in bring us of new we this Select new those we and doing off at or we But gradually product in the the would and some that launching for Tier cycle line product X, quarter matured up. installation and to goods products. Tier in products in are big then category and later back We refurbishment, anticipate that The This of the X to get as to channels Much paid existing taking this construction reasons some that. and are to seeing ramping out yet we described. finished those the have Contractor payable of opportunities of was I see XXX-plus not up were will refilling come the to the the increase directly revitalization And expect related endeavor. come the to finished commissioning are product just goods in Some goods therefore type caused that when inventory in primary in going increase the managing then these accounts. as off. payables area is has they necessitated would some down and into happened various finished and

Operator

Glynn from Oppenheimer. Thank The next with you. comes question Christopher

ahead. may You go

Christopher Glynn

Thanks. Good morning. Nice volumes.

year kind of seeing seeking emergence the at gotten know real picked response offshores has end a two? low As the have the volumes you kind for the of negative, pricing price to you here. over past up out remedy and certainly final of Are the or mix more your a the demand

Vern Nagel

little know, the We we but happen. is the overall market. we larger up picked perspective, doing down. world? last in that the we to starting data marketplace bit and of favors we a data also we is terms expect price of activity think points are Select we introducing right but the We opportunity already challenging census the that make we know portion the pricing the nonresidential serving into some a a a in of different the better say, that is regarding to by, less in early from in a industry product dumping are over that. think that. market sets a construction the are we products this Contractor of of pick and that for the couple directed solution private driven and are we notwithstanding, it's of various to and a stages still up market's nothing, services in lot, in projects of questions we of featured, competitive we use stead seeing, benefits share little good Ricky way, to out, So is And lot unit are but price at looking market that, portfolio in been various look and if way relaunching find this bit This quarter, points. fascinating portion this introducing, and attacking I than to is construction Contractor our spend. that to pricing the the of Select see that U.S. look at think more capabilities of lighting market. well moving You last are being This If in believe margin a let's on be that I I see the portion flat are looking consortiums our Chris, you as there portion continue the legal as that which to market, about continuing longer the we of a that at it more, would attacking products right, market I points to and of of even only That, address. are that. year volumes is with small

trend the marketplace, to fighting, we starting me, saw will, the are U.S. if this the see an in last which The we construction. nonresidential by we to census from you way, quarter, positiveness. So on are some uptick private data

you you people C&I know about portion large have are that flatness, to the channel. contributing in moved has the it's meaningfully don't market products slightly We dumping We volume pricing, our jobs down will, or what's gain. are moved into if market. of us, for on believe They who in just that see So the that's more a if will. really that

a have a things are which of competitive our we resurgence, serve featured less based on seeing positive is area we the lower, ability where a the market, hope we to of advantage ability customers. our size that of portfolio, of think in harbinger We real

kind bit get We of volume. our supply the are linked increase chains to to little trying up in a

of we having are we the to little bit compete tell positioned favorable that that. a I where that are to have forward. going you noise So around world we But business in would

Christopher Glynn

sounds Okay. forward driver. Contractor is it Select like go a more And

the in wasn't low your the cost upfront quarter serve successes margin an end involving to market? product of some were So the that sized that and some at volume flushing hit taking

Vern Nagel

I wouldn't No. say necessarily. that

Select product We is and a introducing the solution into relaunch. are Contractor moving marketplace sets.

of a is out, that new points in we are Ricky also space number products very have there that that products As cost-effective.

altering are we bi. service really model it's our a think I little

give deliver the interested There these with of other customers that what we not into capability behind into entrants to whole lot is are differentiation We is against if market Internet. selling, our thing of a based Obviously it's stands will, the preference occurs. at in just are luminaire that us Juno altering that the on or more far goes we are only is customers. market, some in. along that marketplace support price. the over of how Lithonia they There and on because know people price these truthfully, warrantees training. of not the a important, that can not you products, are that When points Acuity count are having about And they lot but key are Acuity the sure our to brings them

answer the to your question say, would I no. is So

Christopher Glynn

you at higher marketplace? few And in mix the care of share Thanks. the one, opine in last to low on would mix past the between the mover end quarters ebb projects versus what's value been over the a bigger defending

Vern Nagel

that that. mix looked at big look it was We mix, biggest have the at, to approximately products of that I seen think and more of when it's we price analyze price say quarter, channels. hard Yes. would little particular that this there. certain we is it our a our as of are kind points five in number we the growing substitution, we that fact bit a chunk price key but precisely Atrius-based is luminaires But

the projects are Now different those fantastic into the those massive lots of just margin standard luminaires. have of experience projects standard have large of that that margin different types on they historically are products. luminaire, on often those of than we same But the of things what amounts commercial going is because large type

revenues, approximate historically percentage So of of C&I our total are has sales. numbers. The XX% just these about channel as total represented our a

This total the of XX%, in quarter was more XX% that number sales. probably

margin products larger you was them, the into the channel sell look So that for for, C&I primary we if slight again will, as we difference that experience at of projects. larger defined projects decline is there a that reason I in because we of overall If that C&I. the difference internally mostly

at believe, solution a nLight huge, introduced in a the in grow construction. really opportunity And so are The capabilities. quarter turn we am until all put for construction on wireless to renovation require will the it. projects of you And starting us, lots that larger well about very for six the we not of comprehensive that introduction if to are played look the or leading will, also usually that wireless projects really larger and great business. or private there channel positiveness they I nonresidential that place. part I last support are massively that and see, back at they and started renovation has I nLight we our the larger But road of again to interest us capabilities. that was our months good expansion for project also larger side, down a with complicated, mix the of is excited start to construction on a we be do So are deal primarily big is because positive see coming and That's data, on project Acuity. and indicator, census coupled

optimistic are us for holds about we going forward. So what that

Christopher Glynn

Thank you.

Operator

The with comes Thank you. question Joseph JMP Securities. next Osha from

You may go ahead.

Joseph Osha

for you you. got Thank have and hello. I two

of have First in could I impact a much little had we cost if dive am more materials wondering into how an the quarter?

Vern Nagel

to do want you get Ricky, that?

Ricky Reece

don't steel the the by costs go purchase Yes. seen metals, steel, directly of the but up the of cost tariffs. in more both certainly commodity tariffs that much manufactured aluminum, of impacted a from U.S. we bit that which headwind steel. seen We impact secondary have material largely We are a have around steel regardless

seeing little are the some based the pressure on areas. a on would is we on a expect on electronic future we be those the that bit components are that that a bit based of There and there. in pressure some the that pressure to areas in exist seeing currently So has XXX continue of shortages announced, of tariffs tariffs to see administration of bit the China a will

had as by the at in an aren't mitigate impact. both increases that sourcing well are areas from ways it We as as impacted looking reductions, that, tariffs, but price to has cost

would the in say but it putting haven't pressure it's public exactly our I material announcements, some number, it on a not quantified We but margins. is

Joseph Osha

the we second some How that on be, color say uptake that LIGHTFAIR Thanks stuck back so Okay. of for would then what you hike Ricky. been? price has much get would this can has one me at And terms of far? in you the announced

Vern Nagel

that if the just products but mean in to the commenting June price average fluorescent-based I nature. products effect, on LED I They the products. impact I our We hikes were were impact will, agree, on through. think, date, Ricky, some So secondary materials, on range. price X%-plus certain think certain take rolling was Those due certain, announced to you also traditional completely of XX, increase

through. roll are starting So those to

some the of seeing are benefits We that. of

Our this inflation. types is experiencing coming into of expectation, because everyone on space cost these products

increases some of to some those optimism expectations impact costs these it as will absolutely into QX early beyond. offset QX we stick price marketplace. have get and that into is that and it's will the for our results I help too But So our

Joseph Osha

Okay.

I and clear get be to then just here. will So off phone the

So you rolling for to increases your quarter? August of start would numbers through price these the expect some

Vern Nagel

Yes.

Joseph Osha

lot. a Thanks right. All

Operator

Baird. from you. next with Thank Tim question Wojs comes The

You ahead. may go

Tim Wojs

guys. morning. Hi Good

Vern Nagel

morning. Good

Tim Wojs

give I And home fourth those a of the just little bit update could in where ties that just of inventory? product one an us lot in will centers, quarter? wind the how And just on to customer another? a the that you transitions are of to, wanted two up into you from shipping

Vern Nagel

one So to customer another. be we not are from to transitioning extremely clear,

home markets also home channel the supports it channel. distribution your supports also center of channel. portfolio really We Contractor to are important to that's expanding And center of number only not our but the access electrical Select product a the to question. The distinction draw including the

down home as the up in center quarter us We key well were well it channel. the introduce Ricky out partners as Select as Home will of after on pointed ED. as we is have previous channel center, the as tremendous two as quarters. Contractor question that answering C&I still portfolio, the to opportunity inventory, growth our in this our in expectation slightly the So us, front for in being that channel support support

for like opportunity also world folks in channel will of their for those us, all I into coming introductions seeing the be, center So expect an channels, would it be home that, growth. product new will and

Tim Wojs

Great.

a Yes, word. know bad transition probably Okay. I was

that. about Thanks second, Sorry the for on And then buybacks. clarifying. just

have that stock the QX some gradual some now buyback does buyback? that expanded just financing. debt refinancing debt the will we You Should in accelerate you bought a have? and the cadence of guys back in and Or some QX there is you think

Vern Nagel

about have capital a about to there, if over a both doing cash at third we you of third a plus, look the of cash So flows third shares, organization acquisitions, Tim flows our decade well as a everyone repurchasing dividends our really cash of doing expenditures. last and done our about our out of as job flows focused

solidify doing really quarter, last more lighting plus acquisition our $XXX we some industry. within the really backup acquisitions in other then power at very do look allowing One of And position million our us. X interesting was technology to expands what to group spent really you us our the the analytics call in capabilities for two If we Tier emergency capabilities. and

solidified to have two deploying shareholders. leadership. bring So to value capital examples Those our we are are good we of how

In addition it $XXX was that Dan we $XXX million, to spent in near quarter, I the think million?

Dan Smith

year-to-date. the For

Vern Nagel

outstanding. little we shares Year-to-date, sorry. purchasing $XXX five Excuse that believe our me a million of on shares. that. spent over $XXX million the last XX% But have million couple I quarters, buying a over

a what is, looking So of longer-term basis. doing all are we these we on alternatives are at

expanded that us purchase. we So the facility more do we where credit because Board could Dan we to million give still Ricky have from have and shares flexibility authorization X.X our

So absolutely you are right.

plus last decade very Ricky in are the seeing fashion. of this strategic we to and alternatives. as The continue at pipeline, We have look going done over busy M&A a all team be to

in deploy in shareholder our strength always So we value. sheet are financial for to our looking balance ways that drive ways

Tim Wojs

then and the luck good fourth Well, quarter Great. on the next year.

Vern Nagel

you. Thank

Operator

from comes question with Rick Fargo Securities. next Kwas The you. Thank Wells

You go ahead. may

Rick Kwas

Hi. Good morning.

you from with benefit characterize would think volume? about that point quarter with the at very questions couple Select getting in terms volume how And a current in of of the then was on benefit this benefit Contractor significant regards from increase? to terms How Vern, volume? Just the price volume. of on out regards we to should the of

Vern Nagel

our think world, that stock flow smaller and up. the project I So in volumes were

up. were volumes so And

that also part of product of that. Some has substitutions as price and

dollars those our Again, portion what utility terms favorable. Infrastructure were in sales of Atrius-based what's quarter call enterprise So net, look of contributed. still that solutions happening channels most our were increase. I to this said, luminaires favorable we net group, as market. net were the When in we with at we and positive and geographies

not been by So volume larger somewhat another. decline was would the that And the offset were just one area have unit saw, that there. that in the fact favorable in projects sales volume We a versus again, not area. and then

fantastic value think of to quarter. those by and I from sales we on from And just margins. had have additional our only less market mix the quarter from variable contribution we volume, pleased, I on just normal, we way, would sorry, things an turn, see perspective. the on am a if less will had So optimistic very if which had impact Rick, on better not sequentially price, to was larger of again I normal, that third seen start second impact been projects, a incremental margin quarter an been

current that's our are from and think we to, actions the ability dollars. the of growth to market get variable taking I contribution sales that those indicative conditions on

Rick Kwas

Okay.

like So the benefit Contractor should it not going the forward I mean as well that benefit go to Select Select as on price probably should, it's that volume helped basis. but increase -- Contractor volume, be sounds a

Vern Nagel

more it's I on Rich, thing big go QX. type of impact that a say would forward than a

load-ins the out, in the which larger both anticipation points as center just electrical our than from center big distribution of on channel. well channel in is QX Select channel jus building inventories was Ricky As up home as Contractor meaningfully home the the impact

Rick Kwas

small affecting not the on LED, really of It's is the much And portfolio? only price Okay. increase then pieces correct? LED

Vern Nagel

it's meant Contractor so profile attractive to to price a better for have margin Well, imagine, us. points meant is have also what Select but again, do,

Price increased cheese prices new profile. of fluorescent we luminaires primarily primarily more right. is moving we that So steel introducing But where and have bit, are actually been that has on are driven on have that products we that high luminaries. margin little products, content are increases products, a better off those the existing for base have existing

that you thing business increases you fact other on the lighting that to will, price XX% is of I if submit The would is our, project-based.

percentage. by single been we price decreased a the at So here it's we a price some and necessarily not business, oh competitive always widget that way, say the is a

price increases And would be the will portion will that flow. have only impact some will that. but of our see more subject business impact is, and it the or So impact in I of that is stock you more say to of it that price

Rick Kwas

And That's clarification. one Okay. All So sales? that's XX% or right. of then just the so helpful.

think I it's on usually business. on the the C&I, about you it question said so of was Glynn's XX% Chris

to and through on then just large This versus the again? you Then are you It the on run large C&I margin XX% regards margin? me to large Can projects. were standard to differentiating projects quarter XX%. across wasn't that get it Atrius projects, was to you with Atrius commercial trying what clear

Vern Nagel

Well, okay.

business I I and should or C&I total total of our if look at represented typically XX% say, fluctuates. roughly historically, So has it sales our

three This for quarter, points. it to was down four probably

other percentage. So of higher other through channels which other the Atrius-based sale portion what or A higher enterprise primarily is portions a we sale percentage channels, through solutions, had was our sales luminaries. of call

the are they going, they lot a are And of luminaires, so luminaires. those of of type because same where

large So what the much where very and of usually at C&I those standard level a construction luminaires we margin jobs range complicated. those in profit experience the the less than is in sell would very, gross projects, are of larger through typically markets we broader

standard commission margin. we sell commercial also what in at so we cost the exact through typically is selling is And facilities them, the things necessary, significant on there there use are a to do maybe of retailers as cost is serve airports is large for not than and experience this serve a to them, a which would service their the all to ability cost thousands that But higher, on different large type you or where serve, the to as higher projects. higher same to to extract bit typically of luminaire those

Rick Kwas

Okay. That's helpful.

Just a real content. quick software clarification more thought on Atrius I had that.

traditional C&I wouldn't bit large So margin projects? that a the your help versus

Vern Nagel

So relative to it that the type large in would on fluorescent channel. our margin particular products help

is XX to the Atrius-enabled opportunity at the look because solution data different. luminaires just different compare another margin the for is of and similar than profile. and what set, off higher are margins into it is, to into different it's into are selling space. We the it So one by what that same that XX the channel. it's answer single channel profile because you to channel and of of are but are use primarily don't thousand very compared just higher really the different really of They size location, so margin a selling being fixture get you When it you they a have

Rick Kwas

Right.

Okay. great That's helpful. Thanks. fourth. Have a

Operator

Thank Jeffrey Sprague next Vertical Research Partners. with comes you. from The question

You may ahead. go

Jeffrey Sprague

me. Thank you. for Good morning everyone. A couple

the on just First, Select. Contractor

We are end I is to competitors has anything to they from doing what Contractor point? some the low in you maybe pressures at that thinking industry. bit been your the the pulling heard wonder or this the plan have of all with visible are of seeing response the about competitive back that Select, if if what at little from are you kind address a margin

Vern Nagel

No.

seeing not no. our are off, competitors competitors, including We backing traditional our

Jeffrey Sprague

absorption And would inventory the an would significant benefit in And been that in quarter, how your so, have build there margins? on have then if been? the

Vern Nagel

the more then forth, expect, conversion did more exceeded because match the to production, but as more production a lot because in lot well. there conversion to a we again, we product so cost. is it. is we producing the bit but that the had we on more it products bringing bringing would and say costs capitalizing higher sale capitalized a the as the a But are lot would we we lot conversion of expensed I capitalize a Clearly and forth. and incurred you of had and purpose and in was then cost sales more freight whole source a freight lot then But more when or a lot so we

to the quarter-to-quarter, else better margins so designed equal. it it's get consistent should the So matching keep everything

Jeffrey Sprague

one then last Understood. one. And just

little but obviously growing On you the time you of if of this are something juggling to take sense are out wonder just cost understandable your that a supply and of a in magnitude or balance accomplish act or to of kind us automation capacity you volume. could the chain are taking on if to need element there. capacity capacity the that environment, you doing you different actions give of moves, bit at reduction some the and other sourcing I

Vern Nagel

Yes.

into a end up. they providing we those driving around driving facility's, absolute So locations productive absorb connectivity capabilities, products had other into excess specifics, where capacity to locations if was to it's it without smaller absorb the you the those ability the facility, one efficiencies, or capacity, will

So excellent ago XX probably of lean it's productivity. our an We to driving do process. really lean our of part adopted manufacturing job and principles chain years supply continues

to improve So environment the advantage competitive, find some productivity our we results in ourselves to consolidate more we things to be opportunity took current these that of our cost drive help profile the better us in. of financial competitive and and

Ricky Reece

these facilities And are I large acquisitions would add, about Jeff, Vern manufacturing, came not of that as of said. did. several as these part It that we

greater came of to the consolidate acquisitions, So some than bunch tiny it's an we acquired of of that efficiency us having some the that facilities a with to opportunity facilities for get acquisitions. recent

Jeffrey Sprague

Thank appreciate you. color. the I

Operator

to I call like Nagel closing the Vernon would over you. Thank to for turn back remarks. Mr.

Vern Nagel

you are Thank the over and driving strategies you strongly to we everyone critical succeed our for and returns Again, strong believe is objectives, bright the that get organization longer-term right we deliver stakeholders. for morning. thank on support. our to the this the your focusing deploying have Again, future time areas potential proper in the your for key

Operator

participating. That all you conference. Thank concludes today's for

You now disconnect. may

Acuity Brands (AYI) 3 Jul 182018 Q3 Earnings call transcript