Good morning and welcome to the Acuity Brands 2014 Fourth Quarter Financial Conference Call. After today's presentation, there will be a formal question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I would like to introduce Mr. Dan Smith, Senior Vice President, Treasurer and Secretary. Thank you, sir, you may begin.

Good morning. With me today to discuss our fiscal 2014 fourth quarter and full year results are Vern Nagel, our Chairman, President and Chief Executive Officer, and Ricky Reece, our Executive Vice President and Chief Financial Officer. We are webcasting today's conference call at www.acuitybrands.com. I would like to remind everyone that during this call, we may make projections or forward-looking statements regarding future events or future financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our most recent 10-K and 10-Q SEC filings and today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Now let me turn this call over to Vern Nagel.

Thank you, Dan. Good morning everyone. Ricky and I would like to make a few comments and then we'll answer your questions. First, let me say we are extremely pleased with our performance in 2014. We achieved record results for net sales, diluted earnings per share, and cash flow generation for both the fourth quarter and the full year. For the full year and the fourth quarter, net sales grew 15%, which was meaningfully higher than the estimated mid-single-digit growth rate for the key markets we serve. In fact, this was the sixth quarter in a row where we achieved double-digit volume growth, a meaningful accomplishment in this environment. We believe these results are yet again a strong evidence our strategies to provide our customers with differentiated value-added solutions and to diversify the end markets we serve are succeeding, allowing us to extend our leadership position in North America. These strategies include the continued aggressive introduction of innovative, energy-efficient lighting solutions, expansion in key channels and geographies, and improvements in customer service and company-wide productivity. Our profitability and cash flow for the quarter and the full year were records for Acuity, even as we continue to fund our strong sales growth and areas with significant future growth potential, including the expansion of our solid-state luminaire and lighting controls portfolio. I know many of you have already seen our results, and Ricky will provide more detail later in the call, but I would like to make a few comments on the key highlights, first for the quarter. Net sales for the fourth quarter were a quarterly record of $669 million, an increase of over 15% compared with the year-ago period. Operating profit was $90.7 million compared with $78.2 million in the year-ago period. Operating profit margin was a robust 13.6%, up…

Thank you, Vern, and good morning, everyone. Vern covered the primary drivers for our fourth quarter and full year sales growth and our profitability. So I'll not repeat these items. The effective tax rate for the fourth quarter was 33.2% compared with 36.1% in the fourth quarter of last year. The lower income tax rate was primarily attributable to favorable adjustments to certain discrete items. In addition, the prior-year fourth quarter tax rate was unfavorably impacted by a change in UK tax laws, which resulted in a reduction of certain deferred tax assets. The effective tax rate for the full year of 33.8% was relatively flat compared with 34.0% in the prior year. We estimate the effective tax rate for fiscal year 2015 will be approximately 35.5% before any discrete items and if the rates in our taxing jurisdictions remain generally consistent throughout that year. As Vern mentioned earlier, cash flow generated from operations for fiscal year 2014 was a very impressive $233 million, which is more than $100 million over the prior year. The significant year-over-year improvement reflects higher net income and lower working capital requirements as compared with the prior-year period. Our operating working capital defined as account receivables plus inventory less accounts payable decreased five days to an industry-leading 33 days and represents only about 12.5% of revenue. Most of this improvement was in our management of inventory where we continue to improve our inventory turns while also improving our service levels. In fiscal year 2014, we spent approximately 1.5% of revenue or $35.3 million on capital expenditures compared with $40.6 million in the prior year. This reduction in spending was due to some large projects in fiscal year 2013 that did not repeat and delays in certain projects this year that got pushed into fiscal year…

Thank you, Ricky. As we look forward, we continue to see significant long-term growth opportunities that are ever changing and evolving, particularly for Acuity. Our expectations for growth of the lighting industry primarily in North America has not changed much over the last few quarters. We remain very positive. So while we don't give earnings guidance, I would like to provide you with some observations for fiscal 2015. First, most economists expect the economy in North America will continue to improve at a modest to increasing pace. Our forecast for industry growth rates by independent organizations continue to vary widely. The consensus estimate for the broad lighting market in North American is expected to grow mid to upper single-digit range for our fiscal 2015, reflecting the benefits of both new construction and renovation activity. Further, we continue to see signs that give us optimism regarding the future growth of the markets we serve in our business. Leading indicators in the North American markets such as the architectural billing index, vacancy rates, office absorption, lending availability and the rebound in residential construction continue to improve. As has become the normal over the last handful of years, we are always leery of the next round of uncertainty that might come out of Washington, including potential noise around the mid-term elections as well as fiscal and foreign policy issues. As you know, the manner in how these key issues are handled can meaningfully influence business and consumer confidence. Nonetheless, we continue to expect that overall demand in our end markets for the next 12 months will continue to improve and be more broad-based and consistent than that experienced in either 2013 or 2014. The continued favorable trend in our September order rate again seems to support this continuing level of improvement. Second, excluding…

(Operator Instructions) Our first question is Rick Kwas of Wells Fargo Securities.

Ricky, on the $15 million increase in incentive comp, what should we think of as a normal run rate here in kind of a normalized year, because when we add back, that's pretty significant in terms of EPS, but I assume in a normal year, you would incur some level of comp, so I'm just trying to get the right comparison and the right way to think about it.

This year, we obviously had record performance and all of our employee incentive compensation programs are really driven towards driving pay-for-performance. And so what you saw this year was essentially us exceeding the 75th percentile along three key measurements. Again, we said earnings growth, operating profit margin improvement, and cash flow generation. So that 75th percentile cost structure is now baked in, if you will, into our cost structure. Obviously, we have every incentive to continue to outperform even that level of growth. So the reason that we provided you with this notion of the comparable, variable contribution margin was so that folks could understand that the incentive comp was the piece that was driving that in a way that as we go forward you'll see us be able to deliver that kind of variable contribution on a net adjusted basis.

So we should think of this as kind of the new base and then if you happen to underperform that, then it's a positive to earnings as we think about '15?

Yes. And again, it's not our objective to underperform that. Our history over the last decade has been typically that we have way outperformed the markets that we serve, and so our incentive compensation has really always been in a pay-for-performance environment baked into our cost structure. 2013 frankly was a little bit of an anomaly, in that, we incurred some inefficiencies that was due to our management or the lack thereof, and so obviously our incentive compensation was reduced in 2013. And now going forward, we think we're on a more of a catch-up kind of mode.

In terms of fixed SD&A, Vern, was that – did you hit that $105 million this quarter?

Actually, if we exclude the incentive comp, which I don't want to, all the rest of our costs were very consistent with, say, the third quarter for example, still up from the year-ago period, because we've added headcount into our business. If you look at our total salaried headcount excluding bonus as a percentage of sales, it actually has declined on a year-over-year basis. But if we look at the spending that we had in total bonus in the fourth quarter, our total bonus accrual in the fourth quarter was $15 million higher than what it was in the year-ago period. In fact, what we booked in the fourth quarter was more than all of what we booked in 2013 just to again put that in perspective. So the run rate that I would expect on our bonus going forward is what we've baked in, if you will, what we've earned in 2014. And then if I look at those other sort of fixed costs, that number is probably in the $95 million range. Now having said all of that, we will continue to invest in headcount. We will continue to invest in our SDA area. But what you should expect to see from Acuity is us continuing to leverage that SDA base down, so that as a percentage of sales, our SDA will continue to decline as we continue to improve our revenues till the actual dollars that we will invest there continue to grow.

So, it is at $95 million, which we still think at some point in '15 you’ll get to $105 million a quarter?

Well, again, the $95 million, let's make sure we're talking about an apple to an apple, the $95 million right now excludes the incentive comp. I would say that incentive comp, if we look at it for the full year, Rick, I believe it was $40 million. So let's call it $10 million a quarter. So $105 is probably the leverageable number. But again, what I really want to make clear is that we are improving and we did in 2014, we grew our net sales per head by 11%, so while we will continue to drive productivity in our business, we will also continue to invest in our business.

Was there any positive impact in terms of timing of projects this quarter that helped get you to that level or was that kind of normal mix for the lack of a better term?

Well, what we did start to see is a little bit more of a favorable mix because of some of the new construction coming back, a couple of favorable signs. Our specialty businesses, a number of them, which are more directly related to new construction, had nice growth in the quarter. And as we have said in the past, typically when we have a large new construction project, we see a much broader base of product being selected there, and typically there is more value add in terms of the product and the service that is provided on those types of projects. And so, our expectation is that new construction will continue to rebound as we enter 2015 and beyond. So I think you started to see a little bit of what we'll call channel mix that was favorable to us, but the sales volume obviously was a contributor to that and productivity. Again, I take my hat off to our team throughout the organization where we drilled great productivity.

Next question, Jed Dorsheimer, Canaccord Genuity, your line is open.

I guess first question, Vern, I was wondering if you could comment, the move to LED and we'll maybe just throw OLED in there as well, but sort of this analog to digital transition, with respect to gross margin, is there any metric that you could help us with that you're tying percentage of systems versus simply a fixture sale that you're starting to see or how we could better model on a go-forward basis?

Jed, if you again go back to 2008, last high watermark in non-residential construction, by the way, we're still down in an inflation-adjusted basis here in the US almost 20% from that last high watermark and yet we're still delivering record results. If you look at our sales today, 40% of our revenues are LED-based luminaires. And if you look at the features and benefits within those luminaires, there is control devices on there, there's all dimmable. So the feature and benefit set is dramatically different than the same, if you will, light fixture in the conventional side, which needs to have electronic balance and needs to have other features in it to perform at the same level. So you are seeing this migration to a more capable luminaire and the ability to do more things with it. We are very excited by our in-light capability. This is our software to control luminaires in a lighting environment, room tied into a building floor, tied into an entire building, tied into the building management system, taking advantage of daylight harvesting. All of these systems are really in their infancy. No longer is LED considered a new technology. What's really new, what customers are asking for is how can you help me design smart solutions that are simple for me to use. And so they're paying for those kinds of things. But I believe we're still in our infancy as a market in that solution cell and we call it a tiered solutions approach. So where we are from a tiered solutions approach is again primarily we call tier 1 where it's devices that features and benefits are a price point. Tier 2 now starts to have more control capability, dimmability. When you think dimming, you think energy savings. Tier 3 solution is now tying it together holistically where multiple fixtures are working in unison, as part of a program to take advantage of daylight harvesting now being tied into building management. We're starting to see a migration down there, but yet it's difficult to actually put a precise number of profitability. We do see higher profit margins as we expand down tiered approach and it would be our expectation to continue to see that type of margin improvement over the longer term. But right now, I've given you something that you can actually model. I think we're still a little bit too early in the game to do that.

So is it fair to say that the tier 3 or the total system solution is sort of where LED was three years ago from expectations perspective?

Whether it's precisely that timeframe or not, I don't know. Many competitors are out there with different types of solutions. They're still a challenge. The notion of Acuity focusing on creating smart and simple solutions that are user-friendly, we're starting to see a great deal of traction as we bring together the entire portfolio that we have. As you know, go back a handful of years ago, we've put to work over $0.5 billion in capital through acquisition of controls business, acquiring talent. We're now bringing these systems to market and we're just starting to do that and the response has been very, very favorable.

There were just a lot of numbers in terms of fixed versus variable, so I wanted to reconcile the variable. I thought I heard there was a $31 million increase year-over-year. Is that for the entire year, so '13 over '14 was $31 million or is that for Q4 over Q4?

So to be very clear, in Q4 our incentive compensation increased period-over-period by $15 million. For the full year, our incentive compensation increased about $31 million year-over-year.

Next question, Winnie Clark, UBS, your line is open.

You noted price continues to be neutral other than for certain LED products. Some of your competitors recently have indicated there's been some pressure. So I'm wondering is it your mix versus others that maybe explains why you aren't seeing that in your business?

Again, we continue to see pricing dynamics in every channel, in every geography, but to say that this quarter was different than the previous quarter, what we're commenting on is that it still seems to us to be pretty much the same. In many of our channels, it's bid business and so you have to be very competitive. But what we try to do is really sell value, features and benefits, our service capabilities and why that is a better value than someone else who may be out there simply offering a lower price that can't offer the type of range of value to customers. So again, our sense is we touch so many different channels, so many different geographies, it just didn't feel to us like there was any meaningful change that would be worth noting.

In terms of the various channels, what are you seeing anything notable among the various channels, points of strengths versus weakness, et cetera?

Well, again as I mentioned earlier, we continue to see strength in our commercial, industrial and infrastructure businesses or channels, if you will. I would expect those to continue. We have a kind of portfolio that really is value creating, so whether it be for renovation or new construction, we're extremely competitive. We expect that the home improvement channel will be a growth channel for us again in 2015. We're bullish about 2015 across many channels. And I would also say that, again as I noted earlier, our specialty businesses are now on an uptick and that generally is reflective of an improving new construction market which again is favorable for Acuity.

Next question, Tim Weiss, Baird, your line is open.

New non-residential construction, I was wondering what you're seeing in the marketplace. I guess there's been some false starts in the past, but some of the data out there recently suggests that a little bit more of a broader recovery that's starting on. I guess what I wanted to see if you agree with that statement. If you could break it into two silos in terms of private and maybe public or institutional what you're seeing in those specific markets from a new non-residential construction basis.

Tim, our approach is very straightforward. We use different analysts, different information whether it be Dodge, Global Insights, NEMA. And what we then try to do is correlate that or investigate with our customer base, are they seeing the same. You look at all this data. If you look at again vacancy rates, the architectural billing index, if you look at absorption, credit availability, the Doge Momentum Index is a great indicator. And all of these things have been flashing green signals. When we talk with our end customers whether they're electrical distributor partners or whether they're architects, engineers, lighting designers, contractors, all of them have discussed being more busy and looking to add to their human capability to support what they see as growth. So for us, all of these indicators continue to flash green and we are certainly aggressively putting our shoulder behind our efforts to really drive growth in the various channels that we serve. So it's a collage of many indicators, all seemingly are favorable right now.

Ricky, you made a comment on expecting to be a little bit more active in your prepared remarks on M&A. And I guess maybe some color around what deviated versus your expectations, was it a function of higher multiples less attractive assets, maybe just some color there would be helpful. And then what the pipeline internally looks like right now?

It's very hard to predict the timing of acquisitions. We're very active in the market, looking at things that meet the criteria we're looking at, technology, filling in product gaps, expanding channel access and so forth. Extremely busy this year, looking at opportunities and so forth, but it needs to be a desirable acquisition, so as we get into it and look back, what is it really bringing, is it going to bring the capabilities and the strength that we had anticipated. We don't always have a pan out from a desirability and then on some instances certainly the valuation as people expectations may be a little richer than we would think is appropriate to get the kind of returns that our shareholders would expect from it. So we are very diligent. I think if you look back at our M&A track record, we've done some dozen or more acquisitions in the last decade, virtually of which have added very well to our EVA. Our return on invested capital, I think, speaks to that. As Vern said, we were second highest in our year this year after investing $0.5 billion. So we're going to stay very diligent. We'll be very active, but we're not going to get emotionally attached to one and do it just because we want to get bigger or we have some emotional attachment. So it's got to be desirable and then it's got to be at valuation that gives the proper return to our shareholders to justify the risk that any acquisition brings. So you should count on us to continue to be diligent, but active in that market.

Next question, Matt McCall, BB&T Capital Markets, your line is open. Matt McCall - BB&T Capital Markets: I guess the new construction commentary is pretty encouraging. Can you help us think about what you're expecting your new construction business versus renovation retrofit mix will look like next year?

So I think if you go back to 2008, again I just use that as a reference point, we guesstimate it's impossible to precisely know that 80% of our revenues were driven of some type of new construction, 20% some type of renovation. Today we guesstimate that our business is split evenly, 50/50 between new and renovation. We have learned how to really fish in that renovation pond well and we will continue to drive our capabilities there. But as you know, we are uniquely positioned to respond to new construction demand. So I don't have a forecast or a precise target in mind as to what that mix would be. But suffice it to say, we expect both of those types of businesses, if you will, they're not separate businesses, to grow quite significantly over the next handful of years. Renovation is a huge market. I think the estimates are it's a $300 billion market, 70% of which was installed before 1990 converting at a very slow pace. So the faster that companies like Acuity can reach into that installed base and convince those building owners to update their lighting and their lighting solutions capabilities with our products, it really represents again a growth cycle. So I'm bullish on both, if you will, our continued focus on renovation as well as hopefully reemerging and consistently reemerging new construction cycle. Matt McCall - BB&T Capital Markets: You talked about before the bigger addressable market you have, as we move into a better construction period, can you help us understand the concept of value per square foot and how your offerings are changed and what that should be to the value you're able to offer each new square foot of space?

If you go back into the early 2000s, 1990s, as light sources transitioned from T12 to T8 to T5, people always understood the notion of more efficient use of energy and what we see now today not just with LED-based luminaires, but how we can control them and how we can take advantage of dimming capabilities consistently while people are in their space, it really provides for quite a payback story. So I believe building owners are now well aware again of the features and benefits of newer technology, what it can mean for them. So people are looking at how can I enhance my visual environment while I take advantage of new energy savings we can get. So we're pretty excited about how folks perceive that. And our expectation is that that will continue to drive the markets as we go forward.

Next question, Chris Glynn, Oppenheimer, your line is open.

Ricky, talking about the acquisition picture, you mentioned technologies and product gaps. I'm just wondering how you're thinking about just pure consolidation as a core part of your acquisition strategy.

Certainly we will look at opportunities to gain scale whether it be small or larger consolidations, obviously looking at what synergies can we create to create shareholder value there. Just getting bigger to get bigger is not necessarily our strategy. But if there's obvious synergies either on the cost side or on the market side, absolutely we would look at that and want to be a consolidator in that space. But I wouldn't say that that is our primary focus, but it would be an area that we would certainly look at as we look at others.

Your next question, Colin Rusch, Northland Capital Markets, your line is open.

Can you guys talk a little bit about expected lifetimes and potential (inaudible) at the early stages of the technology evolution. (Technical difficulty).

From a product lifecycle perspective, we do see product lifecycles shortening. As again the efficacy of light sources continue to evolve, I think we have tooled our organization to be quite responsive to that short cycle of opportunity. The replacement, as we mentioned earlier, continues to be huge. The amount of replacement that's occurred to date has been fairly de minimis. So there's quite a bit of runway left. Companies like Acuity that sell the value of the enhancing that visual environment while getting energy savings is a unique capability. The new construction cycle, virtually everyone who is looking to build a building today that is a total cost of ownership type person is looking at LED technology with the ability to incorporate our smart and simple controls where again people can use these things in a very simple fashion. We think that there is a lot of opportunity there for that. So while cycles for new product development will, I think, again shrink particularly as the light source LED becomes more efficacious over time, you'll continue to redesign or design your luminaires to take cost out. But we've been doing that quite effectively. If you go back just again when we first started with LED just shortly after 2008, today 40% of our revenues and we've been almost doubling every quarter over the year-ago period, we've become very skilled at how to manage that product lifecycle management to continue to bring more value.

When you look at your R&D spend and look at how much of that spend is going towards new design and then how much is going towards software, can you talk a little bit about the trajectory (technical difficulty) going forward?

R&D is a little bit of a misnomer. We spend probably $30 million, $35 million a year in pure R&D, but we spend an enormous amount of money in product and solutions development. And those are engineers who are responding to the voice of the market around product and solutions development. The notion of solutions to us is different today than it was five years ago. Again, as I mentioned earlier, we look at how we provide customers with solutions along a tiered approach. Five years ago, Acuity was primarily in what would be tier 1, product, devices, features and benefits, price, that's how you do it. Today, we're offering customers holistic turnkey solutions. More of what we call tier 3 requires us to now have different type of skill set, a human skill set. And we have been transitioning over the last few years of saying that we're not going to do certain things in a conventional world and investing heavily in the talent to really drive that tier 3 approach. So I think if you look at Acuity even two short years from now, you'll see us having folks that are more involved in software development, connecting to this notion of internet of things. You saw that Acuity in conjunction with Qualcomm introduced a retail GPS system that is really second to none. So we will continue to drive those types of capabilities, because for us they represent incremental revenue sources that are attractive because of the value that they bring to our end customers.

Are you seeing any evolution in terms of maturation of financing mechanisms? Are you seeing new sources of capital for financing?

We do see a number of opportunities to sell, if you will, a different value proposition than simply saying I have a fixture that can go into your space. There has been more for opportunities for which financing will be an integral part of that, but not the only part of it frankly. The service element, the quality of light, how people use the space, you have to do that really well and then you can add on some of these other attributes of a potential transaction that people will find very compelling.

Next question, Glen Wortman of Sidoti & Company, your line is open. Glen Wortman - Sidoti & Company: Just wanted to make sure I understood the moving parts on incentive base comp. So if you were to generate similar margin, earnings growth and free cash flow improvement in fiscal '15 compared with fiscal '14, then we shouldn't expect to see much change?

You would not expect to see much change in the period-over-period incentive compensation expense. Just to put that in perspective, again I think it's an interesting fact, if you look at this fourth quarter and you compare it to our previous third quarter, our revenues increased about $65 million. The variable contribution at the operating profit level was 30%. And that includes, in this case a $60 million increase in the variable compensation expense, our fourth quarter we rocked it and the full year was a solid full year. So we were doing a little bit of catch-up in the fourth quarter compared with previous couple of quarters around the rate of our incentive compensation. If you add that back, our variable contribution just to compare an apple to an apple of the fourth quarter compared to the third quarter, that variable contribution on the incremental sales dollar was 55%. So what we're trying to explain to all of you is the fact that we have now baked in what we would consider to be a high performance level of incentive compensation into our cost structure, so that when we get into 2015, if we were to deliver the same type of incremental sales growth, you should expect to see our variable contribution margin being 25%-plus and you wouldn't see us explaining as a variance why we had more incentive compensation over the year-ago period. I hope all that makes sense, but again please realize that we have every incentive in the world to outperform what we did this year. So we're focused on that.

Our last question comes from Mike Ritzenthaler, Piper Jaffray.

Based on past construction cycles, I was wondering about the effect of an improving end market on price. I know the couple of quarters we've seen a little bit of dip on price, but volumes have been good. I guess one would think that as everyone in the chain gets busier, it would materially lift the price/mix bucket of your revenue growth. I'm just wondering as we look through '15, if those end markets do improve, what could the potential lift on price be with the current product mix?

What I will say is that we do expect to have a richer mix, if you will, from a profitability perspective as the new construction cycle comes back, because we will be selling a broader portfolio of our products and our services that tend to generate more margin for us because of the breadth and the scale and the capability of not only our portfolio, but our people. On pricing, again my expectation is that the market is a competitive market. It'll always be a bid market and we will win based on how well we differentiate our portfolio and our services. So that's how I expect us to win. If there is an opportunity in the bid world to differentiate our value and extract more price, we do that every day. Is that going to be different when others are busy? I don't know. I won't guess on that.

I would like to turn the call back over to Mr. Vern Nagel for closing remarks.

Thank you for your time this morning. We strongly believe we are focusing on the right objectives, deploying the proper strategies and driving the organization to succeed in critical areas that will over the longer term continue to deliver strong returns to our key stakeholders. Our future is very bright. Thank you for your support.