Acuity Brands, Inc. — Form 10-Q summary
Reporting period: Third quarter and first nine months of fiscal 2021 ended May 31, 2021. The filing identifies the registrant as Acuity Brands, Inc., a Delaware corporation (NYSE: AYI), which develops and sells lighting, lighting controls, building-management systems, and location-aware applications.
Financial performance
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Net sales | $899.7 million | $776.2 million | $2,468.3 million | $2,435.1 million |
| Gross profit / margin | $386.6 million / 43.0% | $327.6 million / 42.2% | $1,055.7 million / 42.8% | $1,027.3 million / 42.2% |
| Operating profit / margin | $118.1 million / 13.1% | $83.0 million / 10.7% | $294.8 million / 11.9% | $248.0 million / 10.2% |
| Net income | $85.7 million | $60.4 million | $208.2 million | $174.6 million |
| Diluted EPS | $2.37 | $1.52 | $5.66 | $4.40 |
Q3 sales rose 15.9%, operating profit rose 42.3%, and net income rose 41.9% year over year. For the nine-month period, sales increased 1.4%, operating profit 18.9%, and net income 19.2%. Q3 gross margin increased 80 basis points; nine-month gross margin increased 60 basis points. Management attributed improved profitability primarily to higher volumes, product and productivity improvements, fixed-cost leverage, and lower special charges. Higher component and freight costs partly offset Q3 gains.
Management also reported non-GAAP adjusted diluted EPS of $2.77 for Q3, up 42.8%, and $6.90 for the nine months, up 16.8%. These measures exclude specified items including acquired-intangible amortization and share-based compensation; they supplement, not replace, GAAP results.
Segments and material changes
- Acuity Brands Lighting and Lighting Controls (ABL): Q3 sales were $850.0 million, up 14.6%, and operating profit was $126.5 million, up 28.3%. Nine-month sales were $2,340.4 million, up 0.5%, and operating profit was $326.9 million, up 7.5%.
- Intelligent Spaces Group (ISG): Q3 sales were $55.4 million, up 46.9%; operating profit was $7.2 million versus a $0.2 million loss. Nine-month sales were $139.5 million, up 20.2%; operating profit was $7.9 million versus a $2.3 million loss.
- The company realigned reporting into ABL and ISG beginning in Q3 and recast comparative segment data. ABL represented about 95% of consolidated revenue and ISG about 5%.
- Q3 growth reflected stronger independent and direct sales channels, corporate-account renovation activity, and improved construction conditions. Retail sales declined, which the company attributed to customer inventory rebalancing. Nine-month sales growth was modest, with earlier weakness in corporate accounts and retail offsetting later improvement.
Cash flow, debt, and liquidity
- Nine-month operating cash flow was $316.2 million, compared with $378.3 million a year earlier. Management cited higher receivables associated with improved sales as a primary driver of the decline, partly offset by payroll-tax deferrals and lower interest payments.
- Cash and equivalents were $593.5 million at May 31, 2021, up from $560.7 million at August 31, 2020. Capital expenditures were $30.6 million; dividends paid were $14.3 million.
- Cash used for share repurchases was $340.9 million for the nine months; 3.3 million shares were repurchased. A further 4.4 million shares remained authorized for repurchase at May 31.
- Total debt was $498.2 million, versus $401.1 million at August 31, 2020. The company issued $500 million of 2.150% senior unsecured notes due December 2030 and used proceeds to repay its $395 million term loan. The $4 million industrial revenue bond matured and was paid June 1, 2021.
- No revolving-credit borrowings were outstanding. The company reported $395.9 million of additional borrowing capacity under the applicable covenant and compliance with its financial covenants. Debt-to-total-capitalization was 19.6%, versus 15.9% at August 31, 2020.
- Management said cash, projected operating cash flow, and borrowing availability should meet liquidity needs over the next 12 months; sustained market deterioration could require additional liquidity measures.
Outlook, risks, and unusual items
- No quantified revenue, earnings, or margin guidance was provided. Management expected continued improvement in served end markets, while anticipating volatility in raw-material costs and component and labor availability, and planned continued investment in the business.
- COVID-19 continued to affect construction and renovation demand and component supply. The company noted possible renewed restrictions, further disruption, and uncertainty about the pandemic’s duration and effects.
- On June 4, 2021, the company announced an agreement to acquire ams OSRAM’s North American Digital Systems business, with closing expected July 1, 2021. The stated aims included expanding LED-driver and controls technology, OEM-market access, innovation, and supply-chain control. This was subsequent to the reporting date.
- On May 18, 2021, the company acquired Rockpile Ventures, an Edge AI startup accelerator, using cash on hand; purchase accounting remained provisional.
- Nine-month results included a $4.0 million impairment of an unconsolidated investment. Special charges were $1.5 million, primarily relocation and severance-related costs.
- A securities class action remains pending: most challenged statements were dismissed, while claims concerning five statements proceeded to discovery. The company said it cannot reasonably estimate potential losses or their range. It also faces ordinary-course legal claims and warns warranty or recall costs could exceed historical experience.
- The company declared a $0.13-per-share quarterly dividend on June 25, payable August 2, 2021 to holders of record July 16.
Important facts for investors to verify
- Whether sales and margin improvement persists, particularly in retail and corporate-account channels, and how pricing, freight, component costs, and labor availability affect profitability.
- Whether operating cash flow recovers from the year-over-year decline as receivables and inventories change; inventory was $370.0 million, up from $320.1 million at August 31, 2020.
- The actual closing, purchase price, financing, and financial contribution of the announced North American Digital Systems acquisition.
- The pace and cash impact of further share repurchases, dividends, capital spending, and any acquisitions, alongside debt and revolver capacity.
- Developments in the securities litigation and any change in the company’s ability to estimate potential exposure.