ACUITY INC. (DE)

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 Inc. (referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries as of May 31, 2025 and for the three and nine months ended May 31, 2025 and May 31, 2024. 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 Inc.'s Annual Report on Form 10-K for the fiscal year ended August 31, 2024, filed with the Securities and Exchange Commission (the “SEC”) on October 28, 2024 (“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 Inc. (referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries as of November 30, 2025 and for the three months ended November 30, 2025 and November 30, 2024. 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 Inc.'s Annual Report on Form 10-K for the fiscal year ended August 31, 2025, filed with the Securities and Exchange Commission (the “SEC”) on October 27, 2025 (“Form 10-K”).

Previous wording

Our business exhibits some seasonality, with net sales being affected by weather and seasonal demand on construction and installation programs, particularly during the winter months, as well as the annual budget cycles of major customers. Historically, with certain exceptions, we have experienced our highest sales in the last two quarters of each fiscal year due to these factors.

Current wording

Both ABL and AIS exhibit some seasonality, with net sales being affected by business days, weather and seasonal demand on construction and installation programs, particularly during the winter months, and the annual budget cycles of major customers. Historically, with certain exceptions, we have experienced our highest sales in the last two quarters of each fiscal year due to these factors.

Previous wording

Our significant contractual cash requirements primarily include principal and interest on outstanding debt, accounts payable, accrued employee compensation, 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. Refer to Financing Arrangements below for a discussion of significant changes to our contractual obligations for the first nine months of fiscal 2025.

Current wording

Our significant contractual cash requirements primarily include principal and interest on outstanding debt, accounts payable, accrued employee compensation, 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. Refer to Financing Arrangements below for a discussion of significant changes to our contractual obligations for the first three months of fiscal 2026.

Previous wording

Our cash position at May 31, 2025 was $371.8 million, a decrease of $474.0 million from August 31, 2024. Cash generated from operating activities and cash on hand were used during the current year to partially fund the QSC, LLC (“QSC”) acquisition and our other capital allocation priorities as discussed below.

Current wording

Our cash position at November 30, 2025 was $376.1 million, a decrease of $46.4 million from August 31, 2025. Cash generated from operating activities and cash on hand were used during the current year to voluntarily repay $100.0 million of borrowings on our Term Loan Facility (as defined below) as well as to fund our capital allocation priorities as discussed below.

Previous wording

We generated $398.9 million of cash flows from operating activities during the nine months ended May 31, 2025, compared to $445.1 million in the prior-year period, a decrease of $46.2 million. Cash flows from operations decreased as increased profitability on higher net sales was offset by payments for nonrecurring items as well as higher interest expense and the timing of collections from customers.

Current wording

We generated $140.8 million of cash flows from operating activities during the three months ended November 30, 2025, compared to $132.2 million in the prior-year period, an increase of $8.6 million. Cash flows from operations increased due primarily to higher profit, partially offset by the timing of payments for inventory purchases.

Previous wording

See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statementsfor discussion of the terms of our various financing arrangements, including the $500.0 million aggregate principal amount of 2.150% senior unsecured notes due December 15, 2030 (the “Unsecured Notes”), the terms of our $600.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”), and the terms of our $500.0 million unsecured term loan facility (“Term Loan Facility”) due in two years.

Current wording

See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statementsfor discussion of the terms of our various financing arrangements, including the 2.150% senior unsecured notes due December 15, 2030 (the “Unsecured Notes”), the terms of our five-year unsecured revolving credit facility (“Revolving Credit Facility”), and the terms of our unsecured term loan facility (“Term Loan Facility”) due June 30, 2027.

Previous wording

At May 31, 2025, our outstanding debt balance was $1.0 billion, which consisted of our Unsecured Notes and borrowings on our Term Loan Facility, compared to our cash position of $371.8 million. We were in compliance with all covenants under our financing arrangements as of May 31, 2025.

Current wording

At November 30, 2025, our outstanding debt balance was $797.0 million, which consisted of our Unsecured Notes and borrowings on our Term Loan Facility, compared to our cash position of $376.1 million. We were in compliance with all covenants under our financing arrangements as of November 30, 2025.

Previous wording

In January 2025, we drew the full $600.0 million on the Term Loan Facility to fund the QSC acquisition. In March 2025, we repaid $100.0 million of the outstanding obligation. We had $500.0 million in borrowings outstanding under the Term Loan Facility at May 31, 2025.

Current wording

In October 2025, we voluntarily repaid $100.0 million of our outstanding Term Loan Facility obligation. As of November 30, 2025, we had $300.0 million in borrowings outstanding under the Term Loan Facility.

Previous wording

We were in compliance with all financial covenants under the Credit Agreement as of the periods presented. At May 31, 2025, we had additional borrowing capacity under the Credit Agreement of $595.8 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 $4.2 million issued under the Revolving Credit Facility, primarily for securing collateral requirements under our casualty insurance premiums. As of May 31, 2025, our cash on hand combined with the additional borrowing capacity under the Revolving Credit Facility totaled $967.6 million.

Current wording

At November 30, 2025, we had additional borrowing capacity under the Credit Agreement of $593.0 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility of $600.0 million less outstanding letters of credit of $7.0 million issued under the Revolving Credit Facility, primarily for securing collateral requirements under our casualty insurance policies. As of November 30, 2025, our cash on hand combined with the additional borrowing capacity under the Revolving Credit Facility totaled $969.1 million.

Previous wording

We invested $43.6 million and $41.0 million in property, plant, and equipment during the nine months ended May 31, 2025 and May 31, 2024, respectively. We invested primarily in new and enhanced information technology, equipment, tooling, and facility improvements in fiscal 2025 to date.

Current wording

We invested $26.0 million and $18.9 million in property, plant, and equipment during the three months ended November 30, 2025 and November 30, 2024, respectively. We invested primarily in new and enhanced equipment, information technology, tooling, and facility improvements in fiscal 2026.

Previous wording

On January 1, 2025, we acquired all of the equity interests of QSC, a leader in the design, engineering, and manufacturing of audio, video, and control solutions and services, for $1.2 billion. This acquisition is intended to expand AIS into a cloud-manageable audio, video, and control platform that includes controls, sensors, and software with broad applications across multiple end-markets including education, commercial, hospitality, government, healthcare, and transportation. We funded the transaction using cash on hand and proceeds from our Term Loan Facility. The operating results, assets, liabilities, and cash flows of QSC have been included in our consolidated financial statements since the date of acquisition.

Current wording

On January 1, 2025, we acquired all of the equity interests of QSC, LLC (“QSC”), a leader in the design, engineering, and manufacturing of audio, video, and control solutions and services, for $1.2 billion. This acquisition expanded AIS into a cloud-manageable audio, video, and control platform that includes controls, sensors, and software with broad applications across multiple end-markets including education, commercial, hospitality, government, healthcare, and transportation. We funded the transaction using cash on hand and proceeds from our

Previous wording

We paid dividends on our common stock of $15.3 million ($0.49 per share) and $13.4 million ($0.43 per share) during the nine months ended May 31, 2025 and May 31, 2024, 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 $5.3 million ($0.17 per share) and $4.5 million ($0.15 per share) during the three months ended November 30, 2025 and November 30, 2024, 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 nine months of fiscal 2025 and 2024, we repurchased approximately 0.3 million shares and 0.5 million shares of our outstanding common stock for $90.0 million and $88.3 million, respectively. Total cash outflows for share repurchases during the nine months ended May 31, 2025 and May 31, 2024 were $91.3 million and $88.7 million, respectively. 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 May 31, 2025, 3.4 million shares remained available within the program to repurchase.

Current wording

Total cash outflows for share repurchases during the three months ended November 30, 2025 and November 30, 2024 were $27.1 million and $6.7 million, respectively.

Previous wording

First Nine Months of Fiscal 2025 Compared with First Nine Months of Fiscal 2024

Current wording

First Quarter of Fiscal 2026 Compared with First Quarter of Fiscal 2025

Previous wording

(2) Fiscal 2025 includes $2.5 million in acquisition-related costs and $11.6 million in preliminary amortization of intangible assets for the QSC acquisition.

Current wording

(1) Fiscal 2025 includes $4.6 million in acquisition-related costs.

Previous wording

Net sales for the third quarter of fiscal 2025 increased $210.5 million, or 21.7%, to $1.2 billion, compared with $968.1 million in the prior-year period due primarily to an increase in sales in our Acuity Intelligent Spaces segment driven by the acquisition of QSC, which contributed $172.8 million in sales, as well as higher sales of Atrius and Distech products. Additionally, net sales increased in our Acuity Brands Lighting segment due primarily to higher net sales within the independent sales network, partially offset by lower net sales within the corporate accounts channel.

Current wording

Net sales for the first quarter of fiscal 2026 increased $192.1 million, or 20.2%, to $1.1 billion, compared with $951.6 million in the prior-year period due primarily to an increase in sales in our AIS segment, driven by the acquisition of QSC, as well as an increase in net sales in our ABL segment.

Previous wording

Gross profit for the third quarter of fiscal 2025 increased $118.0 million, or 26.1%, to $570.2 million, compared with $452.2 million in the prior-year period, and gross profit margin increased 170 basis points to 48.4%, compared with 46.7% in prior-year period. Our gross profit increased compared with the prior period due primarily to the fall through of higher net sales, including contributions from the QSC acquisition, as well as favorable materials cost. These increases were partially offset by increased production costs, acquisition date fair value adjustments to QSC's inventory, higher costs for Asian-sourced finished goods (including freight, duties, and tariffs), and additional non-Asian tariff costs.

Current wording

Gross profit for the first quarter of fiscal 2026 increased $104.5 million, or 23.3%, to $553.8 million, compared with $449.3 million in the prior-year period, and gross profit margin increased 120 basis points to 48.4%, compared with 47.2% in prior-year period. Our gross profit increased compared with the prior period due primarily to contributions from the QSC acquisition. The improvement at AIS was partially offset by lower gross profit at ABL due primarily to higher production costs, partially offset by the fall through of higher sales and lower materials costs.

Previous wording

Selling, distribution, and administrative expenses (“SD&A”) expenses for the third quarter of fiscal 2025 were $400.7 million, compared with $306.9 million in the prior-year period, an increase of $93.8 million, or 30.6%. The increase in SD&A expenses was due primarily to higher employee-related costs, including amounts from the QSC acquisition, higher selling costs associated with higher sales, higher amortization, and acquisition-related costs. Acquisition-related costs were recorded within unallocated corporate amounts.

Current wording

Selling, distribution, and administrative expenses (“SD&A”) expenses for the first quarter of fiscal 2026 were $393.4 million, compared with $316.0 million in the prior-year period, an increase of $77.4 million, or 24.5%. The increase in SD&A expenses was due primarily to amounts related to the QSC acquisition, including higher employee-related costs and higher amortization from acquired intangibles.

Previous wording

Operating profit for the third quarter of fiscal 2025 was $139.8 million (11.9% of net sales), compared with $145.3 million (15.0% of net sales) for the prior-year period, a decrease of $5.5 million, or 3.8%. The decrease in operating profit was due to the recognition of special charges in the current period and higher SD&A expenses, partially offset by higher gross profit.

Current wording

Operating profit for the first quarter of fiscal 2026 was $160.4 million (14.0% of net sales), compared with $133.3 million (14.0% of net sales) for the prior-year period, an increase of $27.1 million, or 20.3%. The increase in operating profit was due to higher gross profit, partially offset by higher SD&A expenses.

Previous wording

We reported net interest expense of $12.1 million and net interest income of $1.8 million for the third quarter of fiscal 2025 and 2024, respectively. The increase in net interest expense was due primarily to interest incurred on our outstanding Term Loan Facility and lower interest-bearing cash and cash equivalent balances held during the period as a result of our purchase of QSC.

Current wording

We reported net interest expense of $8.4 million and net interest income of $4.0 million for the first quarter of fiscal 2026 and 2025, respectively. The increase in net interest expense was due primarily to interest incurred on our outstanding Term Loan Facility and lower interest-bearing cash and cash equivalent balances held during the period as a result of our purchase of QSC in the second quarter of fiscal 2025.

Previous wording

Miscellaneous expense (income), net consists of non-service components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses. We reported net miscellaneous expense of $2.3 million and net miscellaneous income of $0.5 million for the third quarter of fiscal 2025 and 2024, respectively.

Current wording

Miscellaneous (income) expense, net consists of non-service components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses. We reported net miscellaneous income of $0.6 million and net miscellaneous expense of $2.5 million for the first quarter of fiscal 2026 and 2025, respectively.

Previous wording

Our effective income tax rate was 21.5% and 22.8% for the third quarter of fiscal 2025 and 2024, respectively. This decline was due primarily to an increase in favorable discrete items recognized in the quarter.

Current wording

Our effective income tax rate was 21.0% and 20.8% for the first quarter of fiscal 2026 and 2025, respectively.

Previous wording

Net income for the third quarter of fiscal 2025 decreased $15.5 million, or 13.6%, to $98.4 million, from $113.9 million reported for the prior-year period. This decrease was due primarily to the recognition of nonrecurring special charges, higher SD&A expenses, and higher net interest expense, partially offset by higher gross profit and lower income tax expense. Diluted earnings per share for the third quarter of fiscal 2025 decreased $0.50, or 13.8%, to $3.12 compared with diluted earnings per share of $3.62 for the prior-year period. This decrease reflects lower net income as well as higher outstanding diluted shares.

Current wording

Net income for the first quarter of fiscal 2026 increased $13.8 million, or 12.9%, to $120.5 million, from $106.7 million reported for the prior-year period. This increase was due primarily to higher operating profit, partially offset by higher net interest expense and income tax expense. Diluted earnings per share for the first quarter of fiscal 2026 increased $0.47, or 14.0%, to $3.82 compared with diluted earnings per share of $3.35 for the prior-year period. This increase reflects higher net income, as well as lower outstanding diluted shares.

Previous wording

The following table sets forth information comparing the operating results of our segments, Acuity Brands Lighting and Acuity Intelligent Spaces, for the three months ended May 31, 2025 and May 31, 2024 (in millions):

Current wording

The following table sets forth information comparing the operating results of our segments, ABL and AIS, for the three months ended November 30, 2025 and November 30, 2024 (in millions):

Previous wording

Operating profit for Acuity Brands Lighting was $407.6 million (15.4% of ABL net sales) for the nine months ended May 31, 2025 compared to $421.3 million (16.1% of ABL net sales) in the prior-year period, a decrease of $13.7 million. The decrease in operating profit was due primarily to the recognition of special charges. Additionally, the fall through of higher net sales and favorable materials cost was partially offset by higher production costs, higher costs for Asian-sourced finished goods (including freight, duties, and tariffs), and additional non-Asian tariff costs.

Current wording

ABL gross profit was $400.6 million (44.8% of ABL net sales) for the first quarter of fiscal 2026, compared with $406.4 million (45.9% of ABL net sales) in the prior-year period, a decrease of $5.8 million. The decrease in gross profit was due primarily to higher production costs, partially offset by the fall through of higher net sales and favorable materials cost.

Previous wording

Acuity Intelligent Spaces net sales for the third quarter of fiscal 2025 increased $188.4 million, or 248.9%, to $264.1 million, compared with $75.7 million in the prior-year period. The increase in sales within the Acuity Intelligent Spaces segment is attributed primarily to the acquisition of QSC, which contributed $172.8 million in sales. Additionally, sales of Atrius and Distech products increased during the current quarter.

Current wording

AIS net sales for the first quarter of fiscal 2026 increased 250.2% compared with the prior-year period. The increase was due primarily to the acquisition of QSC. Additionally, sales of Distech products increased during the first quarter of fiscal 2026.

Previous wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition and results of operations as reflected in our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). As discussed in the Description of Business and Basis of Presentation footnote of the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expense during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition; inventory valuation; goodwill and indefinite-lived intangible assets; and product warranty costs. We base our estimates and judgments on our substantial historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. We discuss the development of critical accounting estimates with the Audit Committee of the Board of Directors on a recurring basis.

Current wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition and results of operations as reflected in our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). As discussed in the Description of Business and Basis of Presentation footnote of the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expense during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition; inventory valuation; business combinations; and goodwill and indefinite-lived intangible assets. We base our estimates and judgments on our substantial historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. We discuss the development of critical accounting estimates with the Audit Committee of the Board of Directors on a recurring basis.