Good morning, and welcome to the Acuity Brands Fiscal 2016 First Quarter Financial Conference Call. After today’s presentation, there will be a formal question-and-answer session. [Operator Instructions] 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. Sir, you may begin.

Thank you. Good morning. With me today to discuss our fiscal 2016 first quarter 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 on our Web site at 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 in 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 will answer your questions. First off, our results for the first quarter of 2016 were outstanding. Our net sales grew 14% while our adjusted earnings per share grew 25%. On an adjusted basis, we achieved quarterly records for operating profit, operating profit margin, net income, and earnings per share. In fact, this was our 11th quarter in a row where we achieved double-digit volume growth. We believe these results are yet again strong evidence of 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 accretive acquisitions, the continued aggressive introduction of innovative, energy-efficient lighting and building automation solutions, expansion in key channels and geographies, and improvements in customer service and company-wide productivity. Our adjusted profitability for the quarter was a record for Acuity, even as we continue to invest in our strong sales growth and in areas with significant future growth potential including the expansion of our solid-state luminaire and lighting controls portfolio as well as our building automation and Internet of Things solutions. 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 for the quarter. Net sales for the first quarter were $737 million, first quarter record representing an increase of 14% compared with the year-ago period and the second highest quarterly sales in our history. Reported operating profit for the first quarter of 2016 was a $112.4 million compared with reported operating profit of $86.7 million in the year-ago period. We recorded…

Thank you, Vern and good morning everyone. Vern covered the primary drivers for our first quarter sales growth and our profitability, so I will not repeat these items. I will provide a bit more color on our record first quarter results and our financial position, as well as our acquisitions of Distech Controls, Juno Lighting Group and Geometri. As Vern mentioned earlier, we had some adjustments to the GAAP results in the first quarter of fiscal 2016 and 2015 which we find useful to add back in order for the quarterly results to be more comparable. In the first quarter of fiscal 2016, we added back various items that are a consequence of applying purchase accounting to the Distech results. These acquisition-related adjustments include pre-tax $0.6 million or $0.01 per diluted EPS for the acquired profit in inventory; pre-tax $1.1 million or $0.02 per diluted EPS for acquisition-related professional fees associated with the Distech and the Juno acquisitions; pre-tax $2.1 million or $0.03 per diluted share for the amortization of the acquired intangible assets of Distech; and $0.5 million or $0.01 per diluted EPS for the stock-based expense related to initial restricted stock unit grants to certain key employees of Distech. In addition to the acquisition-related items, we also adjusted our GAAP results for the special charge in the first quarter of 2016 of $0.4 million or $0.01 per diluted EPS. We also adjusted the prior year results for the special charge of $10 million or $0.15 per diluted EPS. These adjustments to our GAAP earnings resulted in an adjusted diluted EPS of a $1.65 for the first quarter of fiscal year 2016, which is a 25% increase compared with a $1.32 adjusted diluted EPS in the year-ago period. These adjusted results should provide a proper comparison to our expected…

Thank you, Ricky. As we look forward, we continue to see significant long-term growth opportunities that are ever-changing and evolving in a positive direction, particularly for us. Our growth expectations for the North American lighting industry -- primarily North American, has not really changed much over last several quarters, in spite of the noise of the contrary. We remain very positive. So, while we don’t give earnings guidance, I would like to reiterate our observations for fiscal 2016. First, most economists expect the economy in North America will continue to improve at a modest, but increasing pace. While forecast for industry growth rates by independent organizations continue to vary widely, the consensus estimate for the broad lighting market in North America is expected to grow mid to upper single-digit range for our fiscal 2016, reflecting the benefits of both new construction and renovation activity. Again, the continued favorable trend in our December order rate seems to support this continued level of improvement. Further, we continue to see signs that give us the optimism regarding the future growth of the markets we serve in our business. Leading indicators for the North American market such as architectural billing index, vacancy rates, office absorption and lending availability and favorable employment trends continue to improve at varying paces, while residential construction continues to grow nicely. Excluding the price of certain LED components which are expected to continue to decline, we do not anticipate significant changes in input costs over the next 12 months. Further, we expect employee-related cost to continue to rise primarily due to increases in associate headcount, wage inflation and the negative impact of rising healthcare cost. Next, we continue to be leery of foreign currency exchange rate fluctuations which are impossible to predict. Another observation, while our gross profit margin is…

[Operator Instructions] The first question is from Mr. Brian Lee of Goldman Sachs. Sir, your line is open.

Thanks for taking my questions. I had two of them actually; maybe first Ricky on the accounting adjustment, just from a housekeeping perspective. It looks like it’s a $0.20 impact to adjusted EPS this quarter, about 13%. Is that the run rate we should expect going forward? And then, can you outline why you guys have decided to make this shift as it’s done?

Sure. That amount’s approximately correct; again today with the 8-K we filed will give you three-year trend by quarter of what those amounts are, so you can get the trend and this recent quarter now we will have a little bit more restrictive stock that we’ll be issuing with these new acquisitions that would increase that a little bit. The reason we went to this is variety of reasons, one as we’ve indicated, we’ve made three acquisitions in the last four months, two of which are fairly sizeable. The purchase accounting required by U.S. GAAP increases non-cash amortization pretty significantly around trade names, around customers, around technology and so forth that can really distort the historical and underlying performance of the business we believe if someone’s really looking at how the business is performing versus these non-cash items that you have to allocate the purchase price to that increase the amortization. And we’re acquisitive and think we’ll continue to do this. And then on the stock compensation, similarly we issue stock many times to the key executives when we acquire a business to get their interest aligned with our, since they’re our employees, you have to expense that; you can’t put that as part of the purchase price. And so that’s caused an increase. And then as we become more entrepreneurial and technology focused, internally we’re using that as a mechanism to incentivize and align employees’ interest with shareholders. Lastly, I’d say when we looked at most of our public peer companies they were making those same type of adjustments. And so, we’ve figured as we’re comparing our results to now with Philips or spin out as their lighting business or OSRAM or go on down the list, they were adding back these items. So, we thought it would be helpful to have us have an adjusted number on a comparable basis to what many of the other people in our industry are doing.

Second question was just around business trends. I know there’s a lot of noise out there sometimes, as you’ve mentioned Vern around macro data but some of the data we track which show that new construction trends are actually [indiscernible] for growth here very recently. So, I know you’re reiterating the mid to high single digits -- and lighting is late cycle but just wondering what might be driving a delta in your view versus some of the uptick in trends that we might have seen recently here?

I’m going to apologize; you broke out right, when you made the most significant word in your comment about spread. [Ph] So, if you could just repeat that; you see trends as what again?

Yes. It seems like some of the grand and there’s a lot of noise in some of these trends but the data we track has shown some of the new construction trends are into the teens percentages for growth, year-on-year. So relative to the mid, high single digit view that you guys have stuck with and then continue to reiterate, wondering if there’s any sort of delta or maybe potential upside to the view here, acknowledging that lighting is late cycles, so maybe you see those trends later?

Again, we’re not economists, so we use a number of different groups, whether it’s Dodge or Global Insights or NEMA data or other data to accumulate and consolidate the view. We’re also looking at the broad market, not just specifics around whether it would be a vertical like schools or vertical like commercial office buildings. So, we comment on mid to upper single digit; we’re looking at the broad overall market. Our expectation is that certain verticals will continue to show a very, very nice growth, well above those the overall average. But then there’re other areas which tend to bring that down a little bit. So, listen, we’re responding to the marketplace in a very aggressive way. And we believe that our growth rates continue to outpace the overall growth rates in the market. You’re absolutely correct, given the specification cycle, the timeframe, we tend to be -- we tend to lag what we -- what the say orders put in place or words by anywhere from six to nine months. So, we like to see the kinds of things that you just discussed. And if we see that coming in, we will upgrade what we believe will be our view of the future opportunities for the lighting industry. NEMA data came out here just the other day and you’re right it was bullish. I believe on a year-over-year basis it was up like four points or something for the third quarter. So, we continue to be bullish, not only on those types of drivers but we see the opportunity to add additional value as we bring more holistic solutions to bear on the marketplace which is what we call Tier 3 type solutions, So, yes, I believe all of this continues to be a very favorable trend.

Thank you. The next question is from Mr. Jeff Osborne of Cowen & Company.

Just two questions on my end. I was wondering on Juno, if you can just touch on the product overlap with Lithonia [ph] and some of the other brands that you have with the 250 million that front rate that they’ve been trending at?

Juno is an absolutely perfect combination with Acuity. The overlap is almost like a jigsaw puzzle coming together perfectly. The areas where they have strength, we actually have a need. And so when you think about our broad down lighting capability, they only enhance it. If you think about our track capability, we do track but what they do on track is really -- it adds a better, best capability to our good capability. So, we view from a product solution perspective, a perfect combination. There is very little in the way of duplicity or an overlap. When it comes to our presence in channels, they are very strong in the residential channel. This gives us really an opportunity to be the market leader in that channel now. When you look at how they handle corporate accounts, they bring a unique capability. In fact, when we look at the customer base, there is very, very little overlap. So both of us are now going to be able to take the other one’s product solutions portfolio to the -- first that we call on. So, it’s really a very opportunistic situation. And then when you look at the commercial markets, the ability to now have these portfolios be available through superior selling forces, we think gives us a real opportunity. The Juno acquisition, yes, there will be certainly cost synergies, purchasing for example, maybe some duplicate warehousing, whatever. But this is really about growth synergies. The opportunity for both Juno and Acuity to attack the markets together will give us great strength, markets where neither one of us really participated as well as we could. I look at the residential market where we both have strength, but now together it really gives us an opportunity to participate and what I believe will be a decade plus long growth in overall residential construction. It’s interesting to me that when we look at residential construction on an inflation adjusted basis that U.S. residential construction market still up almost 50% from its peak in 2006. So, when you think about population growth over that last decade of probably 2% plus per annum, there is a whole lot of inventory that needs to be built to handle these changing trends. And so, we are just very bullish around the whole opportunity of what Juno will bring. And you’ll start to see those benefits manifest themselves over the next 12 months to 18 months.

It’s great to hear. Just quick follow-up, Vern, I was wondering if you could just address what during the quarter was a biggest area of upside surprise and likewise unanticipated weakness, whether it’s a particular vertical or geography would be helpful.

So, we said in our prepared remarks that our growth was really pretty broad-based. We continue to grow in the infrastructure side; we continue to grow through the home improvement channel; we continue to grow on the commercial side. On the surprise side, you always see ebbing and flowing in certain geographies and things of that nature. There is some dislocation that’s going on, that’s caused by the changes in oil price. But for the most part, Acuity is extremely diversified. Our renovation capabilities are pretty robust. So, we continue to see opportunities, both in new construction and renovation. And it’s that diversification that has given us the ability to, if you will, write out small little geographical nuances or issues and overall deliver growth that is really quite robust. The lighting market and the non-residential construction market for awards and construction put in place, as I mentioned earlier, do have a lag. So to the extent that we actually see this uptick as was described earlier on by I think the person from Goldman Sachs, that’s just additional opportunity for Acuity to continue to outperform the growth rates of the markets we serve. So, we’re very excited about that future opportunity.

Thank you. The next question is from Sven Eenmaa of Stifel. Sir, your line is open.

Yes, thanks for taking my questions. The first one, I wanted to ask about your view in next year in terms of mix on retrofit activity versus new construction, you probably have a longer lead time or some of the projects and have longer term visibility.

Well, if markets play out as this conversation is suggesting, this uptick in new construction, then Acuity is uniquely positioned to participate in that. We have great access to market. But I would say that renovation continues to be a huge opportunity. Based on some of the data that we’ve seen that’s maybe a little bit old now, but if you look at outdoor lighting, the market is only 10% converted. If you look at indoor lighting, it’s only 3% converted. So, we see the renovation opportunity to continue to be very interesting to us given our access to market, our ability to create products that fit the needs of those markets. And as those prices come down in fixtures and solution sets, the ability to sell those products in the markets where they have lower energy costs, now you can get the payback. So you will -- we just believe that that conversion over the next decade is going to be a robust opportunity, particularly for us. And so then when you add new construction on top of that it’s like getting two scoops of ice cream. What will our mix be? I don’t have a good crystal ball around that. We’re marching to a $5 billion business over the next handful of years. And we can see the opportunities of serving both of those markets in an aggressive way. So, we’re pretty excited about both, if you will.

And just a quick follow-up on that. So, when you look at the new construction versus retrofit activity, are the pricing and dynamics you see on both of those markets are materially different or how would you characterize them?

I think it very much depends on the project. To say overall, this is the direction of pricing and how does it compare one to the other. It just depends absolutely on the project; it depends on the vertical; it depends on the size of the capability; it depends on what someone’s trying to do. If a big box retailer is converting a store from conventional lighting technology to digital lighting, the fixtures are primarily the same; they are very ubiquitous. So, pricing is very, very aggressive. If someone is converting their law office and it’s a very high end for conventional, usually they’re choosing luminaries and solution sets that are very sophisticated to many things and are generally more expensive. The margin dynamics for Acuity are very exciting for both because the cost structure just happens to be different. The cost to serve is different. So when you look at the expansion of our margins, I believe it’s because of two things: One, we’re growing our top line in areas that are very important, both new construction as well as not renovation but we continue to drive a great deal of productivity, cost out with the types of engineering capabilities and we’re bringing new solution sets that add value. So, I think you will continue to see us improve our margins. And from a pricing perspective, it’s really about how we bring value-add. Pricing in the marketplace has been consistent and how it approaches it for a long time. So, we don’t see any meaningful changes in how the market competes, if you will.

Thank you. The next question is from Mr. Ken Wise [ph] of Baird. Sir, your line is open.

Just I guess a quick question on the gross margins. I think in your prepared remarks, you noted that component cost were tailwind to margins. I was just wondering if there is a chance that you can break out what that might have contributed on a year-over-year basis to gross margins and how we should think about that as we go through fiscal ‘16.

From my perspective, when we look at our cost structure that makes us ability to drive gross margin, there are many influences there. And so the notion of material cost and how we engineer products to cost out things and how we improve our productivity, FX to a degree, the mix change, I would say that the market, it has been fairly benign on a cost basis. We’ve seen some significant improvements in some areas, owing to see increases in cost, not necessarily commodity or material base cost or component cost in other areas. So, I think you will continue to see us improve our margin but mix obviously has a big influence on that; sales volume has a big influence. We’re not expecting any significant changes in material cost. We do think that healthcare cost will continue to rise. So, we’re always looking for ways to use our internal AVS process, our ability to improve productivity as ways as to help offset some of those things because again as you all know, we operate in a big business environment. So, I would say that as you think about margins going forward, it really is more about our ability to drive volume, our ability to continue to drive productivity than would be on any one given commodity cost component.

And I would just add that in some of the component cost decreases we’re seeing, such as in the LED area that chips and so forth, the industry today for the most part is passing a lot of that on, as we’re continuing to enhance the conversion metrics on ROI and so forth. So, while we’re seeing some benefit in that and speak to that, we are having to share some of that with the customer base.

Okay. And then just as we think about the institutional part of the market, we’ve seen anecdotes that that market is starting to improve. And I’m just curious with education, with schools, with hospitals and government buildings, how -- what is your order book like -- order books look like in those verticals; and are you starting to see projects get released more specifically in institutional?

Yes, verticals are all very different. And it depends on again geography as well. So, yes, we are seeing improvements in what we call the educational market. And we would expect that to continue -- this is like -- and we say that we believe that over the longer term the growth rates of our overall markets will continue to be very favorable, at least for the foreseeable future. Because of the commentary that we’ve heard on this call, you all are starting to see the uptick in some of these areas on certain verticals. And Acuity is well positioned to participate in that. So, we’re bullish about the long-term growth rates of our market. There is a lag for any type of what we call larger type -- medium to larger type project, simply because of the specification cycle to the construction cycle. There is a lot of opportunity to further renovate large spaces with digital lighting, particularly our digital lighting, particularly our digital lighting that has the ability to really act as a digital pipe to enhance the notion of data collection and participation of the Internet of Things. So, we do see not only growth trends that are being driven by macro but then our ability to provide differentiated value added solutions that should allow us to continue to capture market share.

Thank you. The next question is from Mr. Jed Dorsheimer of Canaccord. Sir, tour line is open.

I guess first question just with respect to sales channel and mix, sometimes there can be -- I think you’ve noted before, Ricky and Vern that there is -- there can be some mix shifts within your -- the agent channel. And I was wondering, based on size of or deal size, I was wondering if you looked at this quarter, was this pretty normal or were there any specific shifts in that. I think it’s like 60% of that business, sort of that agenting side of the business in that contribution that led to the more favorable or was it primarily product mix shift driven on the Tier 3 solutions?

So, I would say Jed that this quarter was pretty normal. We’ve had about one point of price mix; we attributed most of that price mix to, as Ricky pointed out, just change in component cost, primarily for LED. We didn’t see a lot of shifting going on that was different, if you will, between the channels and the verticals that we sell to. Our ability to drive an improvement in margin was again unit volume growth but also we are good at improving productivity within our facilities; we are good at looking to improve cost outs of products that we have introduced because we have excellent engineering talent. So, you’re seeing Acuity at its best doing what it does best and that is growing its top line and continuing to look at every area of this business to improve its productivity while investing. We just opened up a new facility down in Mexico because we ran out of space. So, we’re absorbing that and we’re driving productivity there. We’re just darnedably pleased, as Ricky pointed out. We moved into our new technology and innovation center in Decatur where we repurposed an old factory that we had. And it’s just an outstanding facility that will help us to not only retain our top talent but to attract new talent as we continue to drive things. So, this quarter from a mix perspective and all that I think was fairly consistent; there was no new news there, but what you saw is Acuity just executing well.

And then just on my follow-up, maybe sticking with sales channel but a little bit of a different question as we look at the Distech solutions that they offer; it seems to be more on the building management. And historically, you’ve been very strong with that agent side of the business in the lighting. And the sales, if you compare sort of a building management solution and a lighting solution can come at different points in the process on the commercial build in dealing with different people. What have you seen so far in terms of the cross-pollinization of lighting products to the Distech agents and the building automation to your lighting agents?

Distech brings to us about a handful of new sales channels. The primary sales channel that they sell through is the system integrator. The system integrator, you’re absolutely right, they’re very good at both new construction as well as renovation. We see a very, very complementary opportunity going forward to have our local agents and that local system integrator, working ways to create a very strong specification for the combined capability of building automation systems of which lighting and lighting controls are a part. Bringing these things together so that they are extremely smart and extremely simple to use and simple to install, we believe is a powerful, powerful value proposition for customers. So, the ability to begin targeting specification for whether it’s new construction or renovation together, we think is a huge opportunity. And just to tell you where we are in this, I mean to use baseball analogy; the managers are walking up the whole play to exchange their line-up cards. So, we are just now getting after this. But the enthusiasm in certain markets between both agents and system integrators is really very, very interesting. And by the way, Geometri brings a sales channel to us that we had not participated in the past and that’s these value-added resellers. Their connectivity into large projects is quite robust. And so, when you start to think about Acuity bringing in that holistic total building solution and you now add on top of that the ability to drive and collect business analytics because again we believe between Distech and Acuity’s lighting control system that combination, we can collect north of 85% of all the data that’s being created in a building. And now when you start to put the analytics behind it, both what we have today and we’ll be at the Retail Federation Show here in mid-January, demonstrating again the robustness of our ByteLight Visible Light Communication System, which is that indoor positioning to robust combination. And now when you put on top of that Geometri’s ability to drive analytics off of that, I’ll tell you Jed, it’s a powerful combination and we’re just obviously starting this fresh.

Our next question is from John Walsh of Vertical Research Partners. Sir, your line is open.

I was curious given the recent tax extender legislation at the end of last year, a few changes here on section 179D with energy efficiency and raising the requirements, obviously the new requirements are more of focus on controls and lighting. I want to know if you’re hearing customers talk about that or is it kind of something you guys see as being exciting to the market?

We believe that those types of legislations that bring energy efficiency, both from an awareness perspective as well as a mandate are extremely positive. If you look at what’s happening in California around Title 24, we believe that those types of requirements will only become more robust in more states, more opportunities. So all of those kinds of things are just another macro driver for the things we’re doing. Ricky?

Yes, we were generally very pleased with the passage of that and making some of the items permanent. You mentioned one element that’s very helpful. They also renewed the tax, accelerated tax benefit that someone can get from putting in more energy efficient lighting controls as well as other energy-efficient areas. That had expired a year plus ago and they reinstated that. And then reinstating and making permanent the R&D tax credit, which is now as we’re continuing to do more and more in the technology space is a positive for us. So, all the way around, we were very pleased with the passage of the tax extender and particularly the fact that they made some of these permanent.

Great. And then, so my second question around the incremental, so the as adjusted or further adjusted incremental, I was calculating out to be about 25 which I think you guys have said you’re comfortable with the mid to upper 20s. One, I was kind of curious, what are some of the things that will drive us towards the upper end of that range from here; and then wanted if there was kind of any impact from kind of this remaining vigilant on pricing, if there was anything that kind of changed quarter sequential in terms of competitive dynamic?

So, I’ll answer the last part first. The competitive dynamics were again consistent with what we’ve seen. There is nothing that I would say would be noteworthy in terms of the pricing dynamics that would be outside the norm, if you will. That doesn’t mean that we don’t experience -- we’re a bid business that we don’t experience some competitive pressures, but I wouldn’t call that out. On the variable contribution folks, what you have to understand is that we are making investments in our business, we’ve done this for a long time, and it depends on the timing of some of these things. So, this quarter, the hiring that we did, we’ve added some tremendous capability that will drive revenues. And so those revenues will flow through without us having to add additional capabilities to garner those. And so you will see this ebbing and flowing in our variable contribution margin. That’s why we said mid to upper single -- or mid to upper 20s as a sort of a target. But ultimately as the investment that we make and the investment base becomes pretty solid, we expect that the growth rates in our top line will meaningfully impact those variable contributions because we have the core competencies in place. And we’re now driving great revenues over that, if you will, new fixed base. Having said that, I think over the course of the year, you will continue to see very favorable variable contribution margins. This quarter was smack dab consistent to what we expected. And the things that are happening that represent future growth opportunities, we’re starting to see the benefit of those; we’re starting to see the revenues rolling through. Our Tier 3 solutions which again are off a very small base, growth rate there is robust.…

I’d now like to turn the call back over to Mr. Vernon Nagel for closing remarks.

Folks, thank you for your time this morning. We strongly believe we’re 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. The market reaction to our result is notwithstanding. Believe me, our future is very bright. Thank you for your support.