Acuity Brands, Inc. (NYSE:AYI) Q1 2023 Earnings Call Transcript

Neil Ashe: Yes, let me just take a – put this in context first and then Karen you can answer the specifics on the financials. We do want to get in front of changes that we see in the marketplace. And so we are going to constantly evaluate the businesses that we compete in, and Sunoptics was an acquisition from about 2013 or so I think that just frankly wasn’t performing anymore, and our Winona custom business was just that, a custom business that we didn’t expect to perform in the upcoming environment. But these are also demonstrations of our willingness and ability to make decisions that we think are going to impact the business going forward. Each of these were – so we will absorb the impact of these in our guidance both to top line and the profitability going forward, and that was contemplated, obviously, in our – in Karen’s comments about this year.

Christopher Glynn: Great. Appreciate the time out. Thank you.

Operator: Thank you. One moment for our next question, please. And our next question will come from Ryan Merkel from William Blair. Your line is open.

Ryan Merkel: Thanks. Good morning, and thanks for taking the questions. I just had a couple of follow-ups. My first question is on gross margin. Is the shape of gross margins it’s still the same where the second half is going to be better than the first half or has that changed because componentry is a little bit easier to get?

Karen Holcom: Yes, Ryan, when we talked last quarter, we did talk about some of the pressures that we would see and some of the higher cost inventory started to flow through in the first half of the year. So that really hasn’t changed. Our perspective is that inventory will continue to flow through in the first half of the year. And so that should indicate some opportunity for improvement in the back half, as well as to what Neil mentioned earlier with the opportunity more level loading of our facilities and to have more control over the electronics in our supply chain.

Ryan Merkel: Got it. Okay. And then a follow-up on SG&A. I think you said you’re going to leverage SG&A this year. When do you expect to do that? Does that happen in 2Q? And can you just unpack what changes from 1Q? I’m not sure I heard that. Thank you.

Neil Ashe: Yes. So thanks for the opportunity to clarify that because that’s not what I said. Chris’ question, I think, was, are we confident that we can leverage SG&A? And yes, we are confident that we can leverage SG&A. The change in the first quarter sequentially from the fourth quarter in the SG&A number was primarily around the investment and commissions that Karen outlined. And that was positioning us for future growth not a permanent change in the rate of commission. So we see those commissions. We expect those commission investments to continue through the next couple of quarters in relation to sales. So don’t expect us to leverage that line. Obviously, we will constantly be evaluating our operating expenses and especially if the market changes. But all of that’s contemplated in the guidance that Karen provided.

Ryan Merkel: Got it. Thanks for clarifying.

Operator: Thank you. One moment for our next question, please. And our next question will come from Jeffrey Sprague from Vertical Research Partners. Your line is open.

Jeffrey Sprague: Thank you. Good morning, everyone. I guess maybe next Monday will be Happy Monday roll off for MLK Day. So I feel like we’re beating a dead horse with this commission question, but I’m a little bit confused here. It sounds like you’re paying higher commissions today for potentially better sales in some future period. Is something else going on here, which is kind of the ability to retain salespeople or kind of just labor costs, labor availability, – and why would you be kind of front loading commission costs for this potential future infrastructure revenues and the like?