Good morning, and welcome to Acuity Brands' 2013 Third Quarter Financial Conference Call. [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, and good morning. With me today to discuss our third 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 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 will answer your questions. First off, we are quite pleased with our results for the third quarter. Our net sales grew 11% this quarter, which was meaningfully higher compared with the estimated low-single-digit growth rates of the key markets we serve. While there were 3 unusual items in our third quarter numbers, noise, if you will, and we will explain those in a moment, we feel we delivered very solid results while achieving success on numerous strategic priorities. You will recall from our previous calls and SEC filings, we expected market demand to show signs of improvement in our second half. While we believe this occurred, there were still inconsistency in orders. However, in spite of this variability, Acuity, again, achieved meaningful sales volume growth. In fact, this was our 13th quarter in a row of sales volume growth. We believe this is, yet again, positive evidence of our strategies to provide our customers with differentiated value propositions and to diversify the end markets we serve are succeeding, allowing us to extend to 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. I know many of you have already seen our results, and Ricky will provide more detail later, but I would like to make a few comments on the key highlights for the quarter. However, before doing so, I would like to comment on the noise in our numbers. First, as we noted in our last 10-Q, we became aware of a fraud perpetrated at a freight service provider to the company earlier this third quarter. After…

Thank you, Vern, and good morning, everyone. I will highlight a few items regarding our income statement, including the special charge, temporary production inefficiencies and the fraud-related loss. I then will discuss our cash flow and financial conditions before turning the call back to Vern. Vern covered the primary drivers for our sales growth and our profitability, so I will not repeat these items, but I will provide a bit more color on certain aspects of our third quarter results. Let's first look at our special charge related to streamlining activities. In the third quarter of fiscal 2013, we continued our efforts to streamline the organization through the planned closure of certain small production facilities, as well as the realignment of responsibilities primarily within various selling, distribution and administrative departments. We recognized a pretax special charge related to our streamlining actions totaling $7.2 million, or $0.11 diluted EPS. The pretax special charge consist almost entirely of severance and employee-related costs. The production facilities we are closing manufacture less than 2% of our total production, and we expect to complete the closure and related transfer of production by the end of the calendar year. We currently expect to incur production transfer expense and other costs of approximately $2 million over the next 2 fiscal quarters related to this streamlining action. We estimate the total annualized pretax savings associated with this streamlining action to be approximately $15 million, and we expect to realize $2 million in our fourth fiscal quarter and to be at the full annualized run rate by the end of the calendar year, assuming the production transfers occur according to current plans. These savings should help fund important investments we are continuing to make to expand our product and solution portfolio and enhance our production distribution and customer service…

Thank you, Ricky. As we look forward, we continue to see significant long-term growth opportunities. While we don't give earnings guidance, I would like to add a few more observations to what we mentioned earlier regarding our expectations for the balance of 2013. First, as we have noted before, while we expect the economic environment to continue to be challenging, we anticipate that businesses and consumers in North America will accelerate their investments as uncertainties over U.S. fiscal issues dissipate and the economy continues to improve. Forecasts by independent organizations for industry growth continue to vary widely. The consensus estimate for growth rates in key segments of the nonresidential market for new construction in the U.S. for 2013 is in the lower mid-single digits, while sales for lighting fixtures are expected to be modestly higher, supported by renovation and retrofit activity and a growing residential market. This suggests that expected growth in the broad lighting market in North America will be in the mid-single-digit range for the balance of calendar 2013. This is closely -- or excuse me, this is reasonably consistent with the outlook we provided in our recent SEC filings. Also, as we noted earlier, there are other signs that continue to give us optimism regarding the future growth of our business. Leading indicators, such as Architecture Billings Index, vacancy rates, office absorption, lending availability and the rebound in residential construction, continue to be favorable. As you know, there is a lag in the new construction cycle between the design phase of projects and the ultimate purchase of lighting fixtures and controls. Therefore, while we see -- while we still see some volatility in demand among certain channels and geographies, our expectation for the balance of calendar 2013 is that overall demand in our end markets will continue…

[Operator Instructions] Our first question comes from Shawn Lockman from Piper Jaffray.

Just wanted to see if you could give us just a little bit of more detail on the puts and takes on gross margins. While I know that on a year-over-year basis they may have kind of ticked down, they sequentially improved and are obviously kind of moving in the right direction. You expressed some confidence that those margins will continue to improve. Can you talk a little bit about kind of -- just a little more detail in terms of the factors that will influence that manufacturing efficiencies, pricing mix, those kinds of factors?

So as we think about our margin profile, let me just provide a little bit more background information. While it's impossible to precisely calculate this number, we believe that approximately half of our revenues today are involved in some form of renovation and retrofit. And as we think about that business dynamic -- or that market dynamic, it has an influence on the margin profile that we enjoy. Obviously, when we sell products into large projects that have a broad portfolio of products that are going into that project, hence they have a higher mix than renovation, where a renovation of certain retail spaces, for example, maybe more of a singular or few products that tend to be more competitive. Our expectation is, is that we will experience this type of margin profile for a while until new construction starts to come back and becomes a more traditional percentage of our overall business. We are very excited to continue to win these types of renovation projects. I think it demonstrates our unique capability to really tailor lighting solutions. But because of the size and nature and the competitive nature of some of those types of projects, it tends to have a lesser-than-average margin profile. We've look hard to offset those types of things through productivity improvements, through cost reductions in terms of design. When we think about products that we're selling into certain channels that are, again, for renovation of homes, these are products that Acuity did not have a robust portfolio in the past, when it was more conventional incandescent-type lighting. So we're very excited to be penetrating these channels, but they typically come with lower margin profile. I think the exciting news from an investor's perspective is Acuity is realizing penetration into that renovation world, and we've yet to really see the fulsomeness of the return of new construction, which is starting to happen. Again, as I mentioned earlier, leading indicators are flashing favorable signs, and I think that we're in the early stages of what will probably be a fairly long run in terms of new construction. So it's our expectation that over time, as these -- as the mix of our business comes back to more historical norms, we will enjoy the benefit of improved gross margins, as well as operating profit margins.

That's very helpful. I mean, if I kind of move down the P&L here to OpEx, it's about 29% of revenues this quarter, I believe. Is this a good way to kind of look at OpEx going forward or should we continue to see that kind of shrink as a percentage of overall revenues? I know you mentioned that there will be some ongoing sort of inflation costs and so forth, but how should we think about that in terms of the changes you guys have made in terms of streamlining and then also Obamacare and some other factors?

Yes. I would offer 2 comments there. With the acquisitions, the recent acquisitions of Adura and eldoLED, we have added more SD&A expenses. The revenues to offset those are coming. But right now, I would expect that our SD&A expense, with all the puts and takes of acquisition, streamlining capabilities, to probably now be in the $93 million to $95 million range. As you recall, I said that we were in the kind of $88 million to $92 million range, so roughly around an average of $90 million. We do expect that, with these acquisitions, that, that will have ticked up. Additionally, our variable cost, freight and commissions is probably in the 11.3 to 11.7 range. Again, it depends on the mix percentage of sales. So I would expect us to continue to drive revenue growth over that fixed investment base. The acquisitions that we have made recently are very exciting for us. It gives us a unique opportunity to provide capability, not only for our portfolio, but for OEM customers to advance their opportunities. So Acuity will continue to sell more and more components to the industry because we see opportunities, obviously, to do that. So yes, you should expect us to leverage that fixed investment base, but that fixed investment base has gone up because of these acquisitions recently.

Just to clarify that $93 million, $95 million, that's fixed portion of the SD&A cost per month.

Per quarter, Ricky.

Pardon me, per quarter. Correct.

Let's be very clear. That is $93 million to $95 million of what we consider fixed, though there is some variability per quarter.

Right. Right.

Our next question comes from Matt McCall from BB&T Capital Markets. Matthew Schon McCall - BB&T Capital Markets, Research Division: So Vern, one word we didn't hear and we haven't heard as much is the control side. And I know you don't break it out as a separate category now, but I'm just curious about the trend there. How -- what's the percent of penetration from a luminaire perspective, how -- what's the attachment rate, if you will? And any color around -- is it progressing as expected? And maybe, what's the margin or growth benefit as you see more penetration of controls moving forward?

Matt, that question is a fantastic question because it brings -- it highlights for us the difficulty that we are having in trying to identify sales volume versus price mix versus channel and product mix. The world is coming together as we had predicted, if you will 5 years ago, and the integration of Lighting Controls into the luminaire and how we control that is occurring. Our ability to send -- to sell integrated lighting solutions as part of a holistic package are continuing to grow. Virtually all of our LED luminaires have some type of lighting control element as part of them, and so those LED luminaires now represent 20% of our revenues. When we look at some of the discrete components that we would sell into the marketplace, we continue -- from a controls perspective, we continue to see growth. We actually see growth accelerating pretty significantly in our nLight program, the ability to again tie luminaires together in a holistic lighting solution that then further gets tied into energy and building management. So we are experiencing again solid growth there. The issue on the margin side -- and we're very pleased, by the way, with our margins. For us to have delivered 41% gross margins, a 12.2% operating profit margin while seeing the LED side of our business continuing to grow, I think it’s pretty robust. There are reports out there that others have made that suggest that based on what Zumtobel is doing, we should see a decline in our margins. To be clear, at least yet to see the significant turnaround in new construction that I think is before us, and yet we continue to grow our top line meaningfully in that renovation area broadly defined, small, medium, large-type renovation projects, which typically -- or tend to have lower overall margins. So all of this is working as we have planned, and I think that we are, again, uniquely positioned to leverage our platform and portfolio. Matthew Schon McCall - BB&T Capital Markets, Research Division: And maybe as a follow-up, Vern, my second question, you talked a lot about mix, whether it be project or some of the stock and flow, whether it be renovation versus new. And you talked about the mix impact from renovation. What -- is there -- have you provided any detail about the estimated margin impact from that mix, from more renovation? And if you have -- and if I missed it, I apologize. But just curious, as that shift moves, if we can kind of point to a margin improvement trend based on mix shift toward more construction?

Well, I think that, as we pointed out, we believe, as best as we can estimate, that our sales volume was up 14% in the quarter over the year-ago period. Price, product and channel mix brought that down to slightly above 11% overall growth. So those -- that 3 points had a lot of stuff going on, if you will. And I think that, that is probably a better reflection or a good reflection of the difference between the kinds of margins that we typically enjoy off of new construction, where there's a heavy specification influence, versus those items where they tend to be single-type products, high-volume, competitively bid-type items. Again, we are quite pleased with the performance and the ability for us to penetrate this renovation market aggressively. It really reflects the scale and capabilities of our lighting people to create unique solutions, but they just tend to be lower margin businesses or projects. The other thing I would say on the stock and flow side, again, we are entering portions of the market where Acuity traditionally did not have strength or really presence, and that is in renovation and retrofit-type kits using LED-based luminaires for the residential market. And we're enjoying quite good growth there, and those products are good margins but they're just not at our historical average simply because of the nature of the business and the competitive market that's out there.

Our next questions comes from Glenn Wortman from Sidoti. Glenn Wortman - Sidoti & Company, LLC: On the streamlinings [ph] you just announced, what's the breakdown there on savings between cost of goods sold and SD&A?

About75% to 80% would be in SD&A and the rest would be in cost of goods sold. Glenn Wortman - Sidoti & Company, LLC: And then just more of a medium term questions, as your end market continue to recover and hopefully non-res construction comes back, do you think double-digit would be sustainable say over the next 3, 4 or 5 years?

Well as we pointed out earlier, we believe that the markets that we serve have the opportunity to grow by 50% over the next 3+ years. Again our feeling is that the way we have positioned the company with both access to market, product portfolio and again unique capabilities through our acquisitions to allows us to outperform the markets that we serve. So you can do your own modeling and have your own expectations about what that growth rate is going to look like. It would be our expectation to outperform the markets we serve. We are bullish about the future opportunity over the next decade in this industry and more clearly over the next handful of years we see unique growth opportunities to really drive some strong financial performance.

And our next question comes from Peter Lisnic from Robert W. Baird. Joshua K. Chan - Robert W. Baird & Co. Incorporated, Research Division: Hi this is Josh Chan filling in for Pete. The first question on price mix is as [indiscernible] prices sort of come down, to what extent are you seeing above normal price pressures in our conventional business? Just because of the price decline in the LEDs, I was just wondering if You’re seeing that effect.

No, actually we aren't. The good news is the value proposition for so many of the fluorescents is still very strong and we are continuing to see good opportunities there and they have not and we believe in certain of our product lines as they go through their product life cycle that we could experience opportunities to enjoy maintaining if not improving margins later on as we continue to reduce costs, continue to manage product cycles. To date, have not seen a decline, product by product. Again, as Vern has been talking about mix and some of those have continued to be not as favorable as a lot of the renovation products we are selling today are still the traditional technologies. Fluorescent is the primary product in many the renovation project in large box retail space for example. But we've been able to see margins consistent with previous periods. Joshua K. Chan - Robert W. Baird & Co. Incorporated, Research Division: My second question is sticking with the price theme. How would you characterize the ability to perhaps realize price improvement as the construction cycle improves and industry demand improves, how do you expect pricing to play out in that scenario?

Our expectation is that we will be able to provide more holistic lighting solutions, where lighting controls are integrated into the luminaire, the luminaire becomes the point source of intelligence, it's capable of doing much more, it's now tied into a holistic lighting and energy management system.at then gets tied into the overall building management system. We believe we will be able to provide, again, unique capability there, and we would expect for an expansion of our margins on those types of products. We're in the very early phases of seeing how this is playing out, and we do believe that we extract the higher margins for significantly greater value-added holistic lighting solutions. Today, it's fascinating to me to watch our ability to leverage our access to market and sell products that are now different than what we would have sold, say, just a handful of years ago, LED-based, retrofit-type luminaires. It's a market where we really did not play in the past in terms of those retrofit opportunities. So this is really fascinating as we expand our access to market, leveraging our sales capabilities. So you're seeing this growth, but not the same variable contribution that you would have typically seen or expected from a dollar increase. Because in the past, that dollar increase in revenues came from project-type business that was generally driven around new construction. When we start to see that come through as well, I think it's going to be an exciting time. I don't expect that to happen, by the way, next quarter or the quarter after that. As I mentioned earlier, the construction cycle takes a while, but we're now seeing higher quotations, quotations for much more comprehensive portfolios of product and lighting solutions, which I think should bode well for us as we think about our 2014 and beyond.

Our next question comes from Rich Kwas from Wells Fargo.

Two questions. The savings from these initiatives on the streamlining activity, does that -- it sounds like that's kind of a flow-through, that, that's going to be reinvested into the business. Is that -- did I catch that right from the earlier commentary?

A portion of it will. Some of it will make up some of the investments we've been making, if you look back at the guidance that was provided earlier in the call, of the $93 million to $95 million a quarter in the more fixed, semi-fixed portion of SD&A. We're factoring in some of the savings from the streamline saving -- activity to help fund some of that. So you're right, that's not 100%. I wouldn't want everybody to model in that -- 100% of that $15 million or the 75% to 80% of that, that's SD&A, that we're going to not need to reinvest some of that as we continue. But there will be some benefits from those activities.

And Ricky, we would expect that wage, typical wage inflation and typical health care cost will consume some of that. So many of these moves are to help us redeploy assets into higher return areas. But it's also to maintain and drive productivity to offset just natural cost increases that are not always easy to pass along in the form of price increases of product. So what we tend to do is really introduce new products that have features and benefits that allow us to extract higher margins to offset product lifecycle management of older products. And again, I want to be very clear, it depends on where that product is going. We see certain types of renovation as being somewhat lower margin profile than our average due to just simply the nature of that business. New construction tends to consume a much broader portfolio of product and a broader capability of lighting controls the way we would sell it. So...

So is it fair to say something less than 50% of this $15 million is what you would expect the -- the flow-through to the bottom line? Is that a reasonable kind of outlook? I know it can move. And depending on what happens with mix and whatnot -- but is that a reasonable way to look at it?

Yes. Again, I think that we are comfortable in saying that our expectation on a go-forward basis, at least for the reasonable future, after the acquisitions of Adura and eldoLED, that fixed SD&A portion is going to be in that $93 million to $95 million range. Again, there is some variability there, and that for us takes into account the puts and takes of our streamlining efforts, as well as potential cost increases for these other items that we noted.

Okay. And just as my follow-up, Vern, is this -- the comments in your release and then your comments on the call, it just seems like you're a little more constructive on the environment out there, industry-wide in terms of activity. That's kind of my readthrough from your comments and what's in your beliefs. Is that -- I mean, is that true? I just want to make sure that I'm interpreting this correctly, because it seems like versus prior quarters, we then -- a little more cautious, and I'm not saying that you're not keeping an eye on things and cognizant of an environment that could continue to be somewhat choppy, but it seems like it's a little less so now versus prior quarters. Is that the right interpretation?

Sure. A couple things on that. We are not economists. So first and foremost, we believe that the activities or the information that we receive from multiple sources suggest that the growth rate for the lighting space will kind of be mid-single digits for the balance of 2013, calendar 2013, and into calendar 2014. We look at other indicators that, for us, have a historical basis, such as Architecture Billings Index, employment, absorption, lending standards. All of those leading indicators for us right now are flashing green. So my cautious optimism around this is because when those types of leading indicators have turned green, traditionally, that means positive things happen. We do believe that this economy, the GDP in North America -- or excuse me, in the U.S., is starting to improve slowly. But all of the signs suggests positive opportunities over the next handful of years for new construction-type growth. You couple that with the renovation activities that are going on and you're seeing Acuity really learning how to fish in 2 ponds. One, its traditional strength of new construction, now renovation, which is -- which we are aggressively going after and having success there. So what I feel is that -- forget one quarter to the next, but if you look out over the next handful of years, pretty robust opportunity for Acuity to leverage what it does and does so well. And yes, I do have a degree of optimism that over the next 3 to 5 years, we're going to see good growth in the markets that we serve. And it certainly is an improving condition compared with just 2 short years ago.

Our next question comes from Winnie Clark from UBS.

My first question. Again, your top line outperformance versus the industry was really impressive again this quarter. Did you benefit to a similar degree in the quarter from the flow-through of delayed spending? And basically, what I'm trying to understand is what level of outperformance is sustainable going forward?

Well, I can't comment on your latter comment, but I can say that we believe that this quarter reflects the ability of Acuity to penetrate and provide value to the renovation market, as well as small and medium kinds of projects that are in new construction. I believe in our first quarter, we had some carryover into the second quarter as people were waiting to see what was going to happen with taxation, all of those issues that occurred back then. I believe there was delay then. I don't believe that there is delay now. I think that this is business as usual, and it's Acuity outperforming the markets that it serves because it's taking share and because it's providing serious value-added solutions to customers, reflecting our ability to tailor solutions that make sense for them. Again, renovation, both large projects, medium projects and small projects, for us, have now -- are probably half of our business, we guesstimate. But those larger projects tend to carry a lower average or a lower margin profile compared with our average.

Should we think about margins going forward as maybe you're not going to see, given the change in the mix business, at least in the near term, the type of leverage that you have historically been able to demonstrate in your business, based on these types of sales growth?

That's a very good question, and I would say that this quarter is probably reflective given the current mix of our business, of the type of margin profile that we would see going forward. So I think that is a shorter-term phenomenon. I don't have a timeframe around that. On a more medium-term phenomenon, as I said earlier, as new construction becomes, again, a larger portion of our overall mix, I expect top line to grow. I expect that -- the mix of business to improve, allowing us to expand our -- both our gross profit margin, as well as our operating profit margin capability. And I would expect us to see leverage on our SD&A fixed cost.

Our next question comes from Christopher Glynn from Oppenheimer. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: So given the comments of the current mix profile sustainable for the near foreseeable future, would your expectation be to -- you'd be able to hold gross margin flat next year?

Well, we don't give guidance, Chris, so you know that. But our expectation is, is that if mix stays as it is, then the margin profile probably stays relatively consistent. If one believes that new construction, and we do, will start to improve and we'll see more benefits around that. What we've said earlier is that we would expect our margins to show improvement. So right now, and we want to be clear about this. This mix profile that we have today, I think is yielding this type of margin profile. If it stays like that, we would expect it to stay like that for a while. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: Okay. And then LED doubled year-over-year. Clearly, we've hit some price point triggers. How do you think about keeping more of the LED component cost decreases?

Two things. One, it more than doubled. It just didn't double, which is important. And we believe that the LED fixtures and luminaires that we sell today are actually -- we would expect margin percentage improvement as we come closer and closer to parity with conventional -- the cost of conventional lighting components. So in other words, the cost per lumen, as it becomes more and more in parity with LED versus conventional, we would expect the margin profile to actually be higher because that luminaire now has a lot of intelligence embedded into it that can be paid for through significant energy savings as part of a holistic lighting system. It's not just turning it on and turning it off. It's how you can now manage it and tie it in electronically with software, with nLight, into a more holistic integrated lighting solution. So I would say, Chris, that our expectation is, is that as we sell more and more of those solutions, not just individual LED luminaires, we'll see the benefit of that. But again, remember our growth in LED mirrors a lot of this renovation activity, whereas LED-based luminaire is going into renovation because they're easy to install, they're fantastic. They're not glare bombs like some of our competitors sell. These are fantastic fixtures that are doing very well. It's just that they're competitively priced.

Okay. Just to add on -- probably add on a little bit to Vern's comment because it does tie back, Chris, to your previous comments on gross margins going forward, I think there are 2 components to these LED products -- margins going forward that could benefit us. One, as Vern commented on, is the possibility of being able to extract higher margins even when we get parity because of the value add that is there. And are we able to not have to pass on dollar-for-dollar the cost reductions? But the second is even if we pass on dollar-for-dollar, the cost reductions we see in the component costs, as Vern mentioned, the margin percentage would benefit because now you're making the same margin dollars over a smaller sales price. So therefore, obviously, the math would say the percentage is higher. So as LED continues to grow, even if we aren't able to keep for ourselves some of the lower cost reductions and components and had to pass it all along, we would still see margin percentage benefits. And then we do believe we'll be able to retain some of that because of the value add, the longer life, the controllability, all of the value proposition that LED brings that would enable the industry, hopefully, to be able to extract a higher-margin dollar as well. So there's 2 dynamics there that should help going forward on LED luminaires, as well as our overall margin as LED becomes a greater percentage of our sales. The last thing I'd mention is we are expecting, as we sell more LEDs, to sell more controls. It's a very controllable light source. It's one that people do want to dim, as Vern talked about, with the eldoLED acquisition and some of the other activities, the color changing, tunable light, all of these kind of features bring even greater opportunity and greater margin to sell that holistic solution and system instead of discreet devices. So there's a lot of dynamics going on there. Trying to pick the time and the exact amplitude of each of them obviously is impossible, but a lot of things that we find encouraging relative to our gross margins as this plays out. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: Just one final clarification. When you say price parity for LED, I assume that's relative to the higher value that the LEDs can bring.

Price parity, yes. It's really a cost parity between light sources. So the cost per lumen of conventional lighting versus the cost per lumen of an LED. Once those components become parity, the cost -- we believe that the LED luminaire will sell for a premium compared to its conventional counterpart because of the ability to add more value paid for typically through energy savings because of how it ties into a building management capability.

I would now like to turn the call back over to Mr. Vernon 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, deliver strong returns to our key stakeholders. Our future is very bright. Thank you for your support.

This concludes today's conference. Thank you for participating. You may disconnect at this time.