Earnings Call Transcript - AYI Q3 2025

Operator, Operator

Good morning, and welcome to the Acuity Fiscal 2025 Third Quarter Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Charlotte McLaughlin, Vice President of Investor Relations. Charlotte, please go ahead.

Charlotte McLaughlin, Vice President of Investor Relations

Thank you, operator. Good morning, and welcome to the Acuity Fiscal 2025 Third Quarter Earnings Call. On the call with me this morning are Neil Ashe, our Chairman, President and Chief Executive Officer; and Karen Holcom, our Senior Vice President and Chief Financial Officer. Today's call will include updates on our strategic progress and on our fiscal 2025 third quarter performance. There will be an opportunity for Q&A at the end of the call. As a reminder, some of our comments today may be forward-looking statements. We intend these forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as detailed on Slide 2 of the accompanying presentation. Reconciliations of certain non-GAAP financial metrics with their corresponding GAAP measures are available in our 2025 third quarter earnings release and supplemental presentation, both of which are available on our website at www.investors.acuityinc.com. Thank you for your interest in Acuity. I will now turn the call over to Neil Ashe.

Neil M. Ashe, Chairman, President and Chief Executive Officer

Thank you, Charlotte, and thank you all for joining us today. We delivered strong performance in the third quarter of fiscal 2025. We grew net sales, expanded our adjusted operating profit and adjusted operating profit margin, and we increased our adjusted diluted earnings per share. We generated strong cash flow and allocated capital effectively. In ABL, we took aggressive actions to get in front of the evolving tariff policy. We have a dynamic and resilient worldwide supply chain. Over the last several years, we have diversified our supplier options and locations. During the quarter, we leveraged these options to move away from higher tariff environments. We also took strategic pricing actions intended to cover the dollar impact of the tariffs while remaining competitive in the marketplace. Partially as a result of these actions, we received accelerated orders in the third quarter that built backlog. We began to ship this backlog in the third quarter, and we'll continue to ship it in the fourth quarter. And finally, where we could, we accelerated productivity efforts to reduce expenses. Karen will talk more about the specifics of this later in the call. Now moving on to some recent highlights in our electronics portfolio. As we said last quarter, our electronics portfolio is a unique offering in the marketplace, extending from the drivers that power our luminaires to the sensors, controls, and software that control light in a space and connect with the cloud seamlessly through our Atrius Data Lab. Recently, we rolled out two significant controls products. The new wireless SensorSwitch Air product line simplifies lighting control with Atlys pairing, out-of-the-box operation, and broad compatibility. The product line features wireless sensors, wall switches, and embedded sensors that can be used with select Lithonia products. SensorSwitch Air is available as part of Contractor Select and is designed to save contractors time and money, upgrading any project to a connected project with minimal effort and cost. The second product is the animate controller by nLight, a single user interface that simplifies installation, programming, and operation of dynamic lightscapes. Installers are able to define their projects, sketch their required outcomes, and see their design come to life with the ability to dynamically alter color settings and movement in real time. As part of our ABL growth algorithm, we continue to make investments for future growth, prioritizing verticals where we have not historically competed or where we are underpenetrated. This quarter, we accelerated our product vitality efforts through the acquisition of M3 Innovation and launched M3 by Lithonia and Halloween by Hall of Fame. This strengthens our Flood Light portfolio and has product applications in sports lighting and other industrial and infrastructure settings. These products enhance our offering in multiple verticals where we have gaps in our product portfolio, including education, municipalities, and infrastructure. Our products continue to be recognized by the industry for their design and performance. At LEDucation this year, several of our products were identified by Edison Report as must-see, including the Nightingale Embrace, an overbed luminaire used in health care facilities that offer multifunctional modes designed to improve patient experience and optimize patient outcomes. And in April, we won several Red Dot product design awards, most notably for Pelican by Luminis, an outdoor luminaire that delivers soft, uniform, and gradual illumination in plazas and pathways. It can be networked using our nLlight AIR controls, making it easier to specify, install, and operate. And Valenza by Cyclone, a unique V-shaped outdoor luminaire that mixes a minimalist aesthetic with advanced optics to meet municipal requirements and reduce costs. Now switching to Acuity Intelligence Spaces, which had an impressive quarter, delivering strong sales growth and margin expansion. Through Atrius, Distech, and QSC, we have unique and disruptive technologies that are driving productivity for people experiencing spaces and for the people providing those spaces. Atrius and Distech control the management of the space and QSE manages the experiences in that space. Over time, we will use data from both to enhance productivity outcomes through data interoperability. The integration of QSC is going well as evidenced by their strong performance, accelerated revenue growth, and expanded margins. QSE is building the industry's most innovative full-stack AV platform that unifies data, devices, and a cloud-first architecture to deliver real-time action, experiences, and insights. During the quarter, we released a number of new Q-SYS product enhancements. These included new processing options, next-generation automation tools, smarter design workflows, and enhanced data visibility. I'd like to highlight a few of those here. The new class of Q-SYS core processors are faster and have more capacity to support in-room processing and cloud networking. Our Q-SYS Vision Suite connects physical spaces to digital AV intelligence. It uses 3D visualization tools to plan and prepare spaces to maximize the effectiveness of live broadcast or hybrid meetings. The new technology rollout uses speaker and presenter spotlight technology powered by AI cameras and microphones to dynamically frame meeting participants. And finally, we enhanced the capabilities of Q-SYS Reflect. Reflect is our cloud-based remote analytics platform. It supports real-time system health monitoring, remote setup and configuration, and centralized control. I'm pleased with QSC's performance. They are differentiated in the marketplace. They are operating their business successfully, and they are demonstrating productivity and benefiting from the adoption of our better, smarter, faster operating system. Now moving on to Distech. We are focused on where we compete and what we can control to expand our addressable market. This quarter, Distech had strong sales growth. The continued strength of Distech is largely a result of the popularity of our Distech Eclypse portfolio. Distech Eclypse is a strategic differentiator. It is a comprehensive building automation platform that unifies hardware and software into a cohesive ecosystem for intelligent building management. The portfolio includes hardware devices used to manage how a building operates, controlling HVAC, lighting, refrigeration, and other systems. Eclypse devices are modular and scalable and allow for flexible configurations tailored to the specific needs of a space. Devices include building controls, in-room controls, sensors, and interfaces, including the Eclypse APEX controller and the Eclypse Display. Eclypse facilities is the software that optimizes how a building operates. It is the operating system that enables monitoring, remote management, and scalability. Together, Eclypse's hardware and software enhance building performance by minimizing owner costs and maximizing user experience. Now looking ahead, in both Lighting and Intelligent Spaces, we have taken aggressive actions to manage our outcomes given the uncertainty in the marketplace that has resulted from the evolution of the tariff policy and other geopolitical instability. It is likely those actions have resulted in accelerated ordering that has positively affected the third quarter. Our expectation is that the combination of our third and fourth quarter performance will yield the results we expected for the second half of fiscal 2025. We will continue to focus on factors within our control. In ABL, we are focused on product vitality, elevating service levels, using technology to improve and differentiate both our products and how we operate the business, and driving productivity. Our growth algorithm is clear. We will grow the market, we will take share, and we will enter new verticals. In Intelligent Spaces, we are making spaces smarter, safer, and greener by controlling how a built space operates and the experiences that happen within that space. We have unique and disruptive technologies that are driving productivity for people experiencing spaces and for the people providing those spaces. Our focus will continue to be on growth, and we have the opportunity to expand margins. We have demonstrated that we have dexterity in how we operate, enabling us to continue to execute in dynamic market conditions. And we have demonstrated that we can deliver value to our market and drive margins in our business. Now I'll turn the call over to Karen, who will update you on our third quarter performance.

Karen J. Holcom, Senior Vice President and Chief Financial Officer

Thank you, Neil, and good morning, everyone. We had a strong third quarter. We grew net sales, improved adjusted operating profit and adjusted operating profit margin and increased our adjusted diluted earnings per share. For Total Acuity, we generated net sales in the third quarter of $1.2 billion, which was $211 million or 22% above the prior year. This improvement was driven by growth in both business segments and includes three months of QSC sales. During the quarter, our adjusted operating profit was $222 million, which was up $55 million or 33% from last year, and we expanded our adjusted operating profit margin to 18.8%, an increase of 150 basis points from the prior year. This increase was a result of year-over-year improvement in our adjusted gross profit, the growth in ABL and the very strong performance in AIS. Our adjusted diluted earnings per share of $5.12 increased $0.97 or 23% over the prior year. ABL delivered sales of $923 million, which was $25 million or 3% more than the prior year, driven by growth in our independent sales network of $48 million or 8% over the prior year and growth in the direct sales network of $5 million or 5% over the prior year. These increases were partially offset by declines in corporate accounts, resulting from the timing of renovations of a large retailer. Adjusted operating profit increased $12 million to $174 million, and we delivered adjusted operating profit margin of 18.8%, which was up 80 basis points compared to the prior year. Now I want to spend a moment to explain the impact of the tariff policy on ABL performance. As we said last quarter, we price strategically to realize the value that our products bring to the marketplace. During the quarter, we took two pricing actions in response to the evolving tariff policy, which are intended to cover the dollar impact of that policy. We did not reprice the backlog. And as Neil indicated, we saw some evidence of order acceleration ahead of those price increases going into effect. We also took actions to accelerate productivity efforts. These efforts were primarily related to the elimination of brand associates severance and facility reorganization and resulted in a $30 million special charge this quarter. Overall, we believe that our third quarter ABL results reflect some order acceleration with minimal price realization and tariff costs and thus minimal margin impact. Our expectation is that we will realize the majority of the price increases and will be impacted by the full tariff cost beginning in the fourth quarter. Now moving to Acuity Intelligence Spaces. Sales for the third quarter were $264 million, an increase of $188 million. Atrius and Distech combined grew 21% during the quarter, while QSC grew over 20% year-over-year on a pro forma basis. Adjusted operating profit in Intelligent Spaces was $62 million during the quarter with an adjusted operating profit margin of 23.6%. There are several things to highlight this quarter in Intelligent Spaces. First, QSC announced several pricing actions to manage the dollar impact of tariffs. And Distech announced its global price increase in April, effective on June 1, in line with normal historical cadence. Similar to ABL, AIS realized some order acceleration ahead of those price increases going into effect. Also within QSC, we own Pro Audio, a market-leading loudspeaker business that is a relatively small part of QSC. Pro Audio primarily sources from China and has been more heavily impacted by the tariff policy. We are making changes in this business as we integrate it. However, we expect the financial performance in Pro Audio to continue to be impacted by the tariff policy while we work through these changes. Now turning to our cash flow performance. Fiscal year-to-date, we generated approximately $400 million of cash flow from operations. We continue to allocate capital effectively. In the first nine months, we closed the QSC acquisition, acquired certain assets of M3 Innovation, and we repaid $100 million of our term loan. We increased our dividend by 13%, and we have allocated around $90 million to repurchase approximately 344,000 shares. Since the beginning of the fourth quarter of fiscal 2020, we have repurchased approximately 9.8 million shares at an average price of about $149 per share, which is funded by organic cash flow. This amounts to about 25% of the then outstanding shares. Finally, over the last few years, we have taken steps to simplify and minimize the future impact of our pension obligations on the company. Through our investment policies and capital allocation decisions, our pension plans are overfunded. And as a result, we are derisking our qualified pension plans by transferring the majority of the related obligations to a third party. There will be no impact to our cash position, and the noncash GAAP charge of around $35 million associated with this will be recognized in our fourth quarter. In summary, we delivered strong performance in the fiscal third quarter of 2025, taking aggressive actions to manage our outcomes given the uncertainty in the marketplace. We have set ourselves up to deliver a solid second half of fiscal 2025. Thank you for joining us today. I will now pass you over to the operator to take your questions.

Operator, Operator

Our first question comes from Joe O'Dea with Wells Fargo.

Joseph John O'Dea, Analyst

So I wanted to start on the QSC margin. I think it looks like the adjusted margin a quarter ago, I think, was in roughly kind of 17% zone. This quarter, it looks more like 23%, 24%. And you talked about at the time of acquisition over time, getting it to ISG type margins. It looks like quite a bit of progress this quarter. And so anything transitory within that as well as any detail on the steps that you were taking to deliver that kind of margin performance?

Neil M. Ashe, Chairman, President and Chief Executive Officer

Yes, Joe. Looking at AIS as a whole, we had a very strong quarter across all segments. We have a different approach compared to our competitors. Our aim is to unify the data state of built environments, and we are successfully achieving this through building management with Distech and Atrius, as well as enhancing experiences in these spaces with QSC. When we acquired QSC, we were confident that we could align their performance with our historical ISG results as they integrate into AIS. The integration is progressing well both strategically and culturally. QSC's marketplace performance has been strong, contributing to their top-line growth and margin. Additionally, margin improvement came from the adoption of our advanced productivity tools and their effective cost management during this growth. As Karen noted, we observed some order acceleration in the third quarter, which should positively impact both AIS and ABL, which we will discuss later. Overall, we are very satisfied with QSC’s integration. Their growth remains impressive, as does Distech's, and we are working to align their margins. Looking ahead, we will continue to prioritize this growth and may invest further to support it, but we are very happy with their current performance.

Joseph John O'Dea, Analyst

Great. And then just related to your comment about ABL and then some kind of bigger picture thinking around it. And so any sizing of what you think that pull forward or accelerated order impact was in Q3, how you're thinking about it in Q4? And then if you take a step back, I imagine you're in kind of annual planning mode and just how you're thinking about the setup of moving forward beyond fiscal '25, sort of the key watch items for you and if you think the volume environment can stay stable?

Neil M. Ashe, Chairman, President and Chief Executive Officer

Yes. As Karen mentioned, we believe there were some order accelerations in the third quarter for ABL, and the business is performing very well. When looking at the revenue breakdown, our independent sales network and direct sales are doing well, balanced by retail and corporate accounts, which can vary based on timing decisions from large customers. This causes fluctuations throughout the period. We expect that the second half of the year, particularly the fiscal third and fourth quarters, will reflect a more normalized performance for ABL. We are monitoring demand as it builds through the quarter in response to the order acceleration. Moving forward, we plan to take a conservative approach, but we are confident in our ability to capture market opportunities when they arise. Our goal is to ensure positive outcomes for next year and beyond.

Operator, Operator

Our next question comes from Chris Snyder with Morgan Stanley.

Christopher M. Snyder, Analyst

I wanted to inquire about gross margin. The 50% figure is notably high. It seems there wasn't much price realization or tariff cost inflation this quarter. When we observe that increase, is it mainly due to the productivity investments and initiatives the company is implementing? If so, how significant are those? What kind of cost savings should we anticipate as a result? Additionally, are we seeing a positive impact on gross margin from having a full quarter of QSC?

Karen J. Holcom, Senior Vice President and Chief Financial Officer

Thanks, Chris. It's great to hear from you. This quarter, our gross margin was impressive at 50%, influenced by several factors. Firstly, we experienced a bit of growth in ABL, which positively impacted both gross and operating profit. The team has also been dedicated to enhancing the ABL business over time, focusing on product vitality, service, technology, and productivity, which has shown positive results in previous and current quarters. Additionally, the expansion of our spaces segment has contributed significantly. We're developing a robust data and controls business within Acuity, particularly in ABL with our electronics portfolio, and in Intelligent Spaces with Atrius, Distech, and QSC—each of which has strong margin structures and growth potential. While we anticipate that tariff-related costs will affect our margins in the short term as we aim to offset those costs and improve margins over time, the third quarter was not significantly impacted. Overall, our underlying businesses are performing very well, and we've implemented numerous strategies to enhance margins effectively.

Christopher M. Snyder, Analyst

Wow. Well, really, really appreciate that. And then second on maybe just kind of more of a market commentary. I guess the piece of the business that has the most exposure to Asia is the Contractor Select line. It's the company's value brand. I guess any color on how do those prices compare to the AYI branded products that you guys ship out of Mexico? I have to assume that the price delta has narrowed or will narrow depending on where tariffs go. And I would think it feels like it could support a mix-up opportunity into the AYI branded products shipped out of Mexico. So just any thoughts on that? Are you seeing that happen in the market?

Neil M. Ashe, Chairman, President and Chief Executive Officer

So Chris, I'll address that strategically first, which is the Contractor Select portfolio is about everyday lighting products that satisfy basic needs. And as we've accelerated the product vitality efforts over the last several years, we've also created the opportunity to manufacture those products in multiple different places. So obviously, the higher the tariffs, the closer the manufacturing costs come in line to those. Second, then we've introduced, obviously, the Design Select portfolio to be effectively the next tier above that, which is directed at driving productivity with specifiers, with architects, with contractors. And those are largely manufactured in North America, so Mexico and the U.S. So as we look at those kind of going forward, obviously, and we called this out in the prepared remarks, we have a dynamic worldwide supply chain that allows us to flex our manufacturing to the most effective place. That begins with our product design. So this all goes back to product vitality and the strategy around the product vitality, service, and technology that is really combining to drive that productivity. So as we look forward, and I mean, over the next several years, it's hard not to be enthusiastic about the positioning of the lighting business specifically. We are leaders in the marketplace. We're leaders beyond just size. And this quarter really demonstrates, as Karen indicated, what happens when we get a little top line in that business.

Operator, Operator

Our next question comes from Ryan Merkel with William Blair.

Ryan James Merkel, Analyst

Congrats on the quarter. I wanted to also follow up on gross margin. Can you give us a little help on expectations for 4Q? Is 50% achievable? Or do we start to see the higher COGS from some of the tariffs? And I recall that you were passing that on dollar for dollar, and then I don't think you were going to reprice the backlog. So I was expecting a little bit of an impact in 4Q.

Neil M. Ashe, Chairman, President and Chief Executive Officer

Yes, Ryan. So I'll answer that question strategically and build on what Karen said earlier. So we don't think the third quarter had much impact from either the price or the tariff based on the timing of each and the fact that we did not reprice the backlog in any part of the business, so at ABL or on AIS. So the dilutive impact of margin will happen, we believe, starting in the fourth quarter as the dollar-for-dollar coverage of those tariff costs rolls through the system. So we're confident in our ability to cover them from a dollar perspective. That begins with modified supply where it comes from, et cetera, and includes the addition of price. So that combined impact, as you point out, of a dollar-for-dollar coverage would be mildly dilutive to the margin. So that is partly why we're referring to the second half as within our expectation because we think it more or less normalizes the third and the fourth quarter together when combined.

Ryan James Merkel, Analyst

Got it. All right. So we should just think about sequentially, you'll have an impact that will be lower, but hard to quantify at this point?

Neil M. Ashe, Chairman, President and Chief Executive Officer

Correct.

Ryan James Merkel, Analyst

Okay. I haven't seen the guidance yet. Can you just talk about what changes you've made there?

Karen J. Holcom, Senior Vice President and Chief Financial Officer

Sure, Ryan. As we said in our prepared remarks, and we've indicated a couple of times here is that our expectation is the combination of our third and fourth quarter performance is really going to be the results that we expected for the second half. So there's been no change.

Ryan James Merkel, Analyst

Got it. Okay. Maybe I'll slip one more in. Can you just talk about the cadence of orders? My memory is you saw a big pop in sort of March, and you expected it to decline. Just how did that transpire? And then what's the feedback from the agents? Are they telling you they saw a bit of pull forward?

Neil M. Ashe, Chairman, President and Chief Executive Officer

I'll address that. First, regarding the ABL side, we believe there is evidence of order acceleration. The strong growth in revenue across all our controlled environments, including the independent sales network and direct sales, suggests there was some pull forward. We are assessing demand for the remainder of the period. Anecdotally, our sales teams indicate they have managed to advance some projects as customers seek certainty in their plans. Our customer base is rational; uncertainty is not beneficial for them. We will analyze how demand rebuilds through the fourth quarter for lighting. On the AIS side, as mentioned by Karen, we also implemented pricing actions and noted some order acceleration there as well. We'll monitor their performance, but we believe both businesses have market-leading product portfolios and will respond to demand as it arises.

Operator, Operator

Our next question comes from Tim Wojs with Baird.

Timothy Ronald Wojs, Analyst

Could you provide an update on your expectations regarding the annualized cost impact from tariffs, considering the recent changes in rates in various countries?

Neil M. Ashe, Chairman, President and Chief Executive Officer

So, Tim, tariffs are a constantly changing topic, and what is true today may change tomorrow. Starting from April 2 and moving forward, we have been adapting to each change that has occurred regarding steel and aluminum tariffs, and this situation is still evolving. We anticipate receiving updates in July, and we’ll see how it unfolds. As Karen mentioned, through a combination of changes in our supply chain and pricing strategies, we've managed to address the financial impact of these tariffs as we currently understand them. These impacts have fluctuated several times this quarter, and we expect that to continue. The key takeaway is not just the dollar amounts involved but our ability to respond to them effectively. We are confident in our performance. As we've noted previously, full coverage of these impacts will affect our margins moving forward. You can view the third quarter as unaffected and the fourth quarter as affected. Regardless, we will continue to grow, maintain our dollar margin, and our value creation efforts will persist in this environment.

Timothy Ronald Wojs, Analyst

Okay. And I guess just a follow-up to that. So is the expectation that the pricing offsets the dollar impact of tariffs and then the productivity actions that you took in the quarter kind of get your margin back? Or is it the combination of those two things that offsets the dollar impact of tariffs, just a clarification.

Neil M. Ashe, Chairman, President and Chief Executive Officer

Yes. The easiest way to understand this is to consider the dollar impact at the gross margin level. Through the changes we've implemented regarding pricing and cost of goods sold, our productivity initiatives are aimed at gradually rebuilding the percentage margin. While we cannot achieve this immediately, we are committed to this process over time. I'm proud of the efforts our team has made in pursuing these productivity initiatives. We have accelerated what we could and are developing an organization, particularly within the ABL side, that is scalable for the future. This positions us well to continue executing the strategy we've been following for the past several years. Essentially, we are doing the necessary groundwork to sustain growth and value creation in the ABL sector over the next year or two.

Timothy Ronald Wojs, Analyst

Okay. Okay. And then just last one, just how would you describe the progress on shifting to Design Select, just in terms of kind of where you are in that process?

Neil M. Ashe, Chairman, President and Chief Executive Officer

Yes. As I've mentioned, we'll have Contractor Select, which enhances productivity for the distribution and retail channels. We will also have Design Select, which improves productivity for architects, specifiers, contractors, and others. Finally, we'll have the made-to-order portfolio. The progress at Design Select has been strong, but as we've consistently stated, this is a long-term initiative. We are still in the early to mid-stages of the Design Select development, making this a multiyear project.

Operator, Operator

Our next question comes from Christopher Glynn with Oppenheimer & Company.

Christopher D. Glynn, Analyst

Nice sporting numbers, congrats. Just looking for a little color on the ISN, basically the competitive distancing that you're enabling these channel partners with vitality service and data. Are you seeing like some agencies kind of race ahead and extend dominance in their particular regions? Just looking for some anecdotal on the rubber hitting the road there because it seems to be bearing out in the numbers.

Neil M. Ashe, Chairman, President and Chief Executive Officer

Yes, Chris. So obviously, we're proud of our independent sales network. We believe unequivocally, we have the best independent sales network for lighting in North America. That's round numbers, about 80 independent agents throughout the country. And they're accelerating with our performance generally. And any time you try and do something 80 times, you'll have those who are accelerating more than others, obviously. So the performance isn't perfectly uniform but is strong across. We've leaned into and been really successful with those agencies that are on the cutting edge of where we are going. So specifically around controls, those agencies are strong. The agencies that are aggressive in growing markets, some of the changes we've made over the last few years to upgrade our coverage in markets like Atlanta, where we're sitting right now, for example, have really borne out. And so we have, I think, the most productive independent sales network in the industry. And the most productive part of our independent sales network are those agencies that are most closely aligned with where we are going, and they're seeing real success.

Christopher D. Glynn, Analyst

That's really interesting. I was curious if the backlog from legacy pricing has been mostly refreshed. Last quarter, you mentioned that you expected to work through any demand pull forward within that quarter. It seems like that has shifted to actually causing some net pull-in into the third quarter. Is there still any material legacy pricing in the backlog?

Neil M. Ashe, Chairman, President and Chief Executive Officer

We did not reprice the backlog on the ABL side. Therefore, Q3 is a relatively clean quarter, as we previously mentioned. This is what it looks like when we see some top line growth in that business. Looking ahead to the fourth quarter, we expect to see most of the impacts from both the price increase and tariffs.

Operator, Operator

Our next question comes from Jeffrey Sprague with Vertical Research.

Jeffrey Todd Sprague, Analyst

I wanted to revisit the topic of the Intelligent Space margin. I appreciated your detailed response to Joe O'Dea, but I'm still trying to understand the margin rate that exceeded last year, especially when we believed the QST would be in the mid- to high teens for the margin. Is there any aspect of the deal accounting or the way revenues were recorded this quarter that we need to consider? It seems like the revenues this quarter were possibly higher than many of us anticipated. I would like to clarify this further, or is it simply related to pricing adjustments and the additional margins that resulted from that?

Neil M. Ashe, Chairman, President and Chief Executive Officer

Yes, Jeff. I want to emphasize that we are building a very attractive business at AIS, and our recent acquisition of QSC has added significant value to our efforts. When we made the acquisition, we anticipated that their performance would align closely with our legacy results over time. They've actually reached that level much quicker than expected, which is attributed solely to our strategic operations and not to any deal accounting. Their sales growth has exceeded expectations, both theirs and ours. The second key factor is their adoption of our productivity metrics. Our Better, Smarter, Faster operating system has effectively enabled them to grow without a substantial increase in operating costs. It's important to mention that we have not pressured them to cut any expenses; they have maintained their previous activities while enhancing productivity. This reflects our operational model focused on maximizing output with existing resources. We see that leverage at ABL and now at QSC as they integrate our working methods.

Jeffrey Todd Sprague, Analyst

And then just speaking of expenses, maybe kind of an accounting for Karen, but you did take a sizable charge in the quarter. I'm sure there was some fixed assets and things like that, that were part of that. But were there substantial kind of Q3 period costs that now didn't hit Q3 because of the charge and are below the line, so to speak?

Karen J. Holcom, Senior Vice President and Chief Financial Officer

Yes, Jeff. So let me just hit on what those actions were. So as we said, they were to accelerate our productivity efforts around ABL. So the things that we did where we consolidated some brands. So really no impact to the SG&A of that in the quarter. We did have some associate severance as we changed the work and became more productive in certain areas. And that was really late in the quarter. So you didn't really see a lot of the SG&A benefits there. And then on the facility reorganization, that's an administrative facility as we've started to invest in our core ABL business in our Decatur, Georgia area. So that's really just an administrative office that we're going to close and put that up for sale. So no real benefits of that in the quarter. So bottom line is that we've taken these actions, and you'll really start to see the benefits in SG&A and amortization in the fourth quarter.

Jeffrey Todd Sprague, Analyst

Great. And then maybe just last one. Neil, back to just kind of big picture kind of demand equation, right? It's obviously human nature, the prebuy in front of price increases and the like. But does that inform any view about potential demand destruction from tariffs or just the ongoing uncertainty that your customers must have in this environment. Just how is that kind of tone of business just around moving forward with investments and activity?

Neil M. Ashe, Chairman, President and Chief Executive Officer

Yes, Jeff, I believe that customers are acting very rationally in the big picture. This includes their reactions to pricing changes and the fluctuations in tariffs and availability. If you examine the nature of those orders, their behavior appears quite logical. Moving forward, both in the short and long term, we are expecting stability in the marketplace. Our customers are seeking a stable environment to make informed decisions. As I mentioned, we will adopt a cautious approach to our expectations. While we are ready to accept any additional revenue that comes our way, we will generally remain conservative until we see more stability.

Operator, Operator

Our next question comes from Brian Lee with Goldman Sachs.

Unidentified Analyst, Analyst

This is Nick Castro on for Brian Lee. Honestly, just one quick question on the accelerated orders in the backlog. I mean you mentioned putting in price, which drove these accelerated orders, and you mentioned you built a bit of a backlog. Are you still seeing, one, any accelerated orders continuing ahead of July 8 now that price is in? And two, I guess, on the back of those accelerated orders, can you give any color on the size of that backlog that was built or any estimate how long it could take to work it down?

Neil M. Ashe, Chairman, President and Chief Executive Officer

There is nothing regarding July 8 that would lead to order acceleration unless tariffs are increased again, prompting us to adjust pricing. As we wait for updates, we are focused on the announcements of country deals and their potential impacts moving forward. Regarding the backlog, we are making progress in addressing it. As indicated by both Karen and myself, we expect this situation to normalize between the third and fourth quarters. It's helpful to consider this over a six-month timeframe rather than just three months for a clearer picture.

Operator, Operator

Our next question comes from Brett Castelli with Morningstar.

Brett Castelli, Analyst

Just bigger picture on ABL. Neil, you guys have entered some new verticals in that market in recent years. I'm just curious if you can talk about the contribution and the traction that you're seeing overall in some of those new markets.

Neil M. Ashe, Chairman, President and Chief Executive Officer

Yes, Brett. As we've discussed, our growth strategy at ABL focuses on expanding the market, gaining market share, and exploring areas where we haven't previously competed or haven't competed as effectively as we could have. I want to highlight three areas for our discussion. The first is refuel. We've strategically decided to venture into the refuel market where we previously had no presence, and we anticipate building a significant business in that area over time. We are off to a strong start, having introduced a product portfolio, added high-quality independent sales agents, and are beginning to see notable traction. The second area is health care. We have redefined our approach to health care, particularly with the launch of the Nightingale brand, which has shifted the perception of Acuity in the health care sector. Our performance in this area has surpassed our expectations, and we are gaining strong momentum. Lastly, we have acquired floodlight technology through M3, which we plan to implement in sports lighting and municipal infrastructure, beginning in the next quarter and continuing thereafter. We are optimistic about that portfolio. As we explore new ventures, we acknowledge that some will meet our expectations, some will exceed them, and others may progress more slowly than anticipated. Horticulture is currently one area where progress is slower than expected. Overall, however, the range of growth opportunities we have is positively contributing to our performance and will play a crucial role in our future direction.

Operator, Operator

And I'm showing no further questions in the queue at this time. I'd like to turn the call back to Neil Ashe for any closing remarks.

Neil M. Ashe, Chairman, President and Chief Executive Officer

So first off, thank you all for joining us today. We are obviously really pleased with our performance in the third quarter. We have an outstanding business in Acuity Brands Lighting, whose strategy is clear and it's demonstrating the results of product vitality, service, technology, and productivity, which can deliver results. And I think we saw the benefit of what a little bit of top line looks like for ABL in the third quarter. Second, Acuity Intelligence Spaces is differentiated in the marketplace across each of our brands and then the combination of those brands. We have a different theory in the case. We have a collection of disruptive technologies, which are driving productivity for people in spaces and the people who provide those spaces to them, and we're excited about the runway for that business. And then finally, kind of given where the world is right now, we're looking at the combination of the third and fourth quarters to deliver what we expected for the rest of the year. And we feel like we have a foundation for an incredibly strong future from that point going forward. So thanks for your time and attention. We appreciate your interest in Acuity, and we'll talk to you again in a few months.

Operator, Operator

Thank you for your participation. You may now disconnect. Everyone, have a great day.