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Jan. 7, 2022, 7:42 a.m. EST

10-Q: ACUITY BRANDS INC

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(EDGAR Online via COMTEX) -- Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations 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, 2021 and for the three months ended November 30, 2021 and 2020. 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' Annual Report on Form 10-K for the fiscal year ended August 31, 2021, filed with the Securities and Exchange Commission (the "SEC") on October 27, 2021 ("Form 10-K"). Overview Company We are a market-leading industrial technology company. We use technology to solve problems in spaces and light. Through our two business segments, Acuity Brands Lighting and Lighting Controls ("ABL") and the Intelligent Spaces Group ("ISG") we design, manufacture, and bring to market products and services that make the world more brilliant, productive, and connected. We achieve growth through the development of innovative new products and services, including lighting, lighting controls, building management systems, and location-aware applications. We achieve customer-focused efficiencies that allow us to increase market share and deliver superior returns. We look to aggressively deploy capital to grow the business and to enter attractive new verticals. The results of operations for the three months ended November 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal 2022 year due primarily to continued uncertainty of general economic conditions that may impact our key end markets for fiscal 2022, seasonality, and the impact of any acquisitions, among other reasons. Additionally, we are uncertain of the future impact of the ongoing COVID-19 pandemic or recovery of prior deterioration in economic conditions to our sales channels, supply chain, manufacturing, and distribution as well as overall construction, renovation, and consumer spending. Financial Condition, Capital Resources, and Liquidity 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 flow from operations or to access certain capital markets, including banks, is necessary to meet our capital allocation priorities, which are to reinvest in our organic growth, make strategic acquisitions and investments, pay dividends, and repurchase shares. Sufficient cash flow generation is also critical to fund our operations in the short and long-term and to maintain compliance with covenants contained in our financing agreements. Our significant contractual cash requirements primarily include principal and interest on long-term debt, payments for operating lease liabilities, and certain purchase obligations incurred in the ordinary course of business that are enforceable and legally binding. Our obligations related to these items are described further within Management's Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report filed on Form 10-K. We believe that we will be able to meet our liquidity needs over the next 12 months based on our cash on hand, current projections of cash flows from operations, and borrowing availability under financing arrangements. Additionally, we believe that our cash flows from operations and sources of funding, including, but not limited to, future borrowings and borrowing capacity, will sufficiently support our long-term liquidity needs. In the event of a sustained market deterioration, we may need additional capital, which would require us to evaluate available alternatives and take appropriate actions. Cash Our cash position at November 30, 2021 was $504.0 million, an increase of $12.7 million from August 31, 2021. Cash generated from operating activities and cash on-hand were used during the current year to fund our capital allocation priorities as discussed below. We generated $83.7 million of cash flows from operating activities during the three months ended November 30, 2021 compared with $123.9 million in the prior-year period, a decrease of $40.2 million, due primarily to increased operating working capital, particularly inventories, to support the growth in the business as well as the timing of payments for income taxes and prior year payroll tax deferrals under the Coronavirus Aid, Relief, and Economic Security Act of 2020. Table of Contents Financing Arrangements See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for discussion of our various financing arrangements, including the terms of our $400.0 million five-year unsecured revolving credit facility ("Revolving Credit Facility") as well as the $500.0 million aggregate principal amount of 2.150% senior unsecured notes due December 15, 2030 (the "Unsecured Notes"). At November 30, 2021, our outstanding debt balance was $494.5 million compared to our cash position of $504.0 million. We were in compliance with all financial covenants under our financing arrangements as of November 30, 2021. At November 30, 2021, we had additional borrowing capacity under the revolving credit facility of $395.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less the outstanding letters of credit of $4.1 million issued under the facility. As of November 30, 2021, our cash on hand combined with the additional borrowing capacity under the revolving credit facility totaled $899.9 million. The Unsecured Notes were issued by Acuity Brands Lighting, Inc., a wholly-owned subsidiary of Acuity Brands, Inc. The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Brands, Inc. and ABL IP Holding LLC, a wholly-owned subsidiary of Acuity Brands, Inc. The following tables present summarized financial information for Acuity Brands, Inc., Acuity Brands Lighting, Inc., and ABL IP Holding LLC on a combined basis after the elimination of all intercompany balances and transactions between the combined group as well as any investments in non-guarantors as of the dates and during the period presented (in millions): Summarized Balance Sheet Information November 30, 2021 August 31, 2021 Current assets $ 1,222.6 $ 1,172.0 Amounts due from non-guarantor affiliates 238.5 213.4 Non-current assets 1,381.1 1,391.7 Current liabilities 602.7 595.1 Non-current liabilities 818.7 815.7 Summarized Income Statement Information Three Months Ended November 30, 2021 Net sales $ 781.2 Gross profit 324.7 Net income 84.9

Capital Allocation Priorities

Table of Contents







        Results of Operations
        First Quarter of Fiscal 2022 Compared with First Quarter of Fiscal 2021
        The following table sets forth information comparing the components of net
        income for the three months ended November 30, 2021 and 2020 (in millions except
        per share data):
                                                                    Three Months Ended
                                                                                                              Increase
                                                        November 30, 2021         November 30, 2020          (Decrease)              Percent Change
        Net sales                                      $          926.1          $          792.0          $      134.1                      16.9  %
        Cost of products sold                                     540.3                     459.6                  80.7                      17.6  %
        Gross profit                                              385.8                     332.4                  53.4                      16.1  %
        Percent of net sales                                       41.7  %                   42.0  %                (30)   bps
        Selling, distribution, and administrative
        expenses                                                  270.7                     246.0                  24.7                      10.0  %
        Special charges                                               -                       0.7                  (0.7)                          NM
        Operating profit                                          115.1                      85.7                  29.4                      34.3  %
        Percent of net sales                                       12.4  %                   10.8  %                160    bps
        Other expense:
        Interest expense, net                                       5.9                       4.9                   1.0                      20.4  %
        Miscellaneous expense, net                                  0.3                       1.6                  (1.3)                          NM
        Total other expense                                         6.2                       6.5                  (0.3)                     (4.6) %
        Income before income taxes                                108.9                      79.2                  29.7                      37.5  %
        Percent of net sales                                       11.8  %                   10.0  %                180    bps
        Income tax expense                                         21.3                      19.6                   1.7                       8.7  %
        Effective tax rate                                         19.6  %                   24.7  %
        Net income                                     $           87.6          $           59.6          $       28.0                      47.0  %
        Diluted earnings per share                     $           2.46          $           1.57          $       0.89                      56.7  %
        NM - not meaningful
        


Net Sales







                                                                    Three Months Ended
                                                                                    November 30,           Increase
                                                           November 30, 2021            2020              (Decrease)           Percent Change
        ABL:
        Net sales                                         $          883.6          $    753.6          $      130.0                   17.3  %
        Operating profit                                             128.1                98.4                  29.7                   30.2  %
        Operating profit margin                                       14.5  %             13.1  %                   140       bps
        ISG:
        Net sales                                         $           46.4          $     40.8          $        5.6                   13.7  %
        


ABL net sales for the three months ended November 30, 2021 increased $130.0 million, or 17.3%, to $883.6 million compared with $753.6 million in the prior-year period due primarily to our go-to-market activities, focus on servicing our customers, and continued recovery in end markets we serve within the independent and direct sales network channels. Sales within these channels also benefited from recent price increases and revenues from acquired companies. Additionally, sales within corporate accounts increased year over year as some large accounts began previously deferred maintenance and renovations. These increases were partially offset by declines in the retail sales channel. Operating profit for ABL was $128.1 million (14.5% of ABL net sales) for the three months ended November 30, 2021 compared to $98.4 million (13.1% of ABL net sales) in the prior-year period, an increase of $29.7 million. The increase in operating profit was due primarily to contributions from higher sales partially offset by increased materials and freight costs as well as higher operating costs to support the increase in sales.

Jan 07, 2022

COMTEX_400177975/2041/2022-01-07T07:41:35

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