Earnings Call Transcript - AYI Q2 2025

Operator, Operator

Good morning and welcome to the Acuity Fiscal 2025 Second Quarter Earnings Call. At this time all participants are in a listen-only mode. After the speakers’ presentation the company will conduct a question-and-answer session. 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 Q2 Fiscal 2025 Second 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 second 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 second quarter earnings release and supplemental presentation, both of which are available on our Investor Relations website at www.investors.acuityinc.com. Thank you for your interest in Acuity. I will now turn the call over to Neil Ashe.

Neil Ashe, Chairman, President and CEO

Thank you, Charlotte and thank you all for joining us today. We delivered steady performance in the second 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. In March, we changed the name of our company from Acuity Brands to Acuity. This is an exciting step in our company's evolution. It builds on the legacy of our past while representing the scalability of our future. We are positioned for long-term growth and to create stakeholder value and compound shareholder wealth. We have updated and aligned the names of our segments. The Lighting segment will continue as Acuity Brands Lighting or ABL, and the Intelligent Spaces segment has been renamed Acuity Intelligent Spaces or AIS. Now let's discuss ABL. We organize our business around luminaires and electronics. We have spoken a lot about our luminaires portfolio. So I want to spend some time focusing on our electronics portfolio. Our electronics portfolio is fundamental to our strategy of increasing product vitality, elevating service levels using technology to improve and differentiate both our products and how we operate the business and driving productivity for us and for our partners. Within electronics, we have invested in our driver portfolio to control the technology in our luminaires and developed a market-leading lighting controls platform that includes sensors, controls and software. Through eldoLED and OPTOTRONIC, we produced the majority of the drivers we use in our luminaires. This allows us to improve our product vitality and drive productivity throughout our portfolio. Our nLight and sensor switch lighting controls platform includes stand-alone and embedded controls, which can be cloud-enabled. Taken together, our electronics portfolio is a unique offering in the marketplace, extending from the drivers that power our luminaires to the sensors, controls and software, which control light in a space and connect with the cloud seamlessly through our Atrius data app. Let me give you an example of how all of this comes together in practice. This quarter, we expanded our range of GOTHAM IVO products as part of our Design Select portfolio. We produce all the drivers for the entire GOTHAM IVO product portfolio, and each product can be sold embedded with our nLight controls. The new product launch included the GOTHAM IVO Deep Regress Downlight and the GOTHAM IVO Cylinder. These innovative luminaires, when combined with our nLight controls platform, can be used to optimize the space for color and light distribution. The end result is an optimized user experience with elevated aesthetics. These products are developed with our customers' needs in mind to reduce energy usage and maximize occupant comfort. And this quarter, our products have continued to be recognized by multiple industry organizations for doing this. We won 14, 2024 product innovation awards from Architectural Products Magazine that celebrate the products, systems and materials that help architects achieve new levels of creativity or performance in their design. And seven of our products were recognized for design excellence as part of the Lighting Design Awards, including Aculux for their 5-degree precision spot, which was designed for precise illumination to create dramatic effect or to highlight a visual point of interest. Now switching to Acuity Intelligent Spaces, which delivered another strong quarter of sales growth and margin performance. This quarter, we welcomed QSC to the portfolio, advancing our mission to make spaces smarter, safer and greener through our strategy of connecting the edge with the cloud using disruptive technologies. Through Atrius, Distech and QSC, we control how a built space operates and the experiences that happen within that space. We have a unique collection of disruptive technologies, which are delivering distinct end-user outcomes. In the future, we can continue to add to those end-user outcomes through data interoperability. In Distech, we are focused on where we compete and what we can control to expand our addressable market. As part of our geographic expansion, this quarter we continued to add systems integrator capacity in the U.K. and in Asia. Distech Eclypse facilities was awarded the 2025 AHR Expo Innovation Award in the Building Automation category. Eclypse Facilities is a software solution embedded directly within Distech Controls Eclypse devices that provides management and control for a variety of equipment types within buildings. This quarter, we welcomed QSC, and we began the integration process. QSC 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. And we are off to a great start. QSC continues to execute on their strategy and continues to have success in the marketplace. In March, I appointed Jatan Shah to lead QSC reporting to Peter Han, President of Acuity Intelligence Spaces. Jatan joined QSC in 2010 and has held various leadership roles since then. Jatan is a leader in the industry. In addition to his role at QSC, he is also President and Chairman of the Board of AVIXA, the Audiovisual and Integrated Experience Association. Jatan has been integral to the development and success of QSC, and I'm excited for his leadership going forward. And finally, I want to congratulate Joe Pham, who announced his retirement earlier this year, and I want to thank Joe for his contributions to both QSC and the industry over his 20-plus years with the company. Now as we look forward, there is obviously uncertainty in the marketplace, specifically with regards to tariffs. We approach tariffs as the equivalent of a supply shock and our financial priorities are: first, to manage the dollar impact; and second to manage the margin impact. Across the company, we have taken pricing actions in response to tariffs that were in place through the end of March. As the tariff policy continues to evolve, we will continue to take necessary pricing actions and we will work to accelerate our productivity efforts. We will continue to focus on factors within our control and take actions as needed. 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, take share and enter new verticals. In Intelligent Spaces, we control how a built space operates and the experiences that happen within that space. We have a unique collection of disruptive technologies, which are delivering distinct end-user outcomes. Our focus will continue to be on growth and 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 second quarter performance.

Karen Holcom, Senior Vice President and CFO

Thank you, Neil, and good morning to everyone on the call. In our second quarter of fiscal 2025, we grew net sales, improved our adjusted operating profit and adjusted operating profit margin and increased our adjusted diluted earnings per share. We closed the acquisition of QSC during our second quarter of fiscal 2025 and two months of their performance are included in our results. The financials also include certain purchase accounting adjustments resulting from the acquisition. For total Acuity, we generated net sales in the second quarter of $1 billion, which was $100 million or 11% above the prior year. This improvement was driven by the continued growth in intelligence spaces and the inclusion of two months of QSC sales. During the quarter, our adjusted operating profit was $163 million which was up around $23 million or 16% from last year, and we expanded our adjusted operating profit margin to 16.2%, an increase of 70 basis points from the prior year. This increase was primarily a result of the year-over-year improvement in our gross profit and the inclusion of the QSC results. Our adjusted diluted earnings per share of $3.73 increased $0.35 or 10% over the prior year. ABL delivered sales of $841 million, which is $3 million less than the prior year, primarily the result of declines in retail and corporate accounts due to general uncertainty in the wider market. This was partially offset by growth in both our independent sales channel and direct sales channel. We price strategically to realize the value that our products bring to the marketplace. Since the quarter ended, we have taken pricing actions in response to the tariffs that were in place through March. We will continue to take both pricing and operational actions as the tariff policy evolves. Despite the lower sales, adjusted operating profit increased $5 million to $141 million, and we delivered adjusted operating profit margin of 16.8%, which was up 60 basis points compared to the prior year. Sales in Acuity Intelligence Spaces for the second quarter were $172 million, an increase of $103 million. Atrius and Distech combined grew 12.2% during the quarter, with the remainder being the contribution from two months of QSC performance. AIS has also taken strategic pricing actions in response to the tariffs that were in place through the end of March. These actions were directed primarily towards products sold in the U.S. Adjusted operating profit in Intelligence Spaces was $32 million during the quarter, with an adjusted operating profit margin of 18.7%. Now turning to our cash flow performance. Fiscal year-to-date, we've generated $192 million of cash flow from operations. We continue to allocate capital effectively. We closed the QSC acquisition, financing it with $600 million of additional debt and the remainder with cash on hand. And post quarter, we repaid $100 million of the additional debt. We increased our dividend during our January shareholder meeting by 13% to $0.17 per share and we allocated $23 million to repurchase approximately 68,000 shares. In summary, we delivered steady performance in the fiscal second quarter of 2025. ABL continued to deliver adjusted operating profit margin improvement, while AIS delivered impressive results and began successfully integrating QSC. We allocated capital effectively, and we have positioned ourselves well to react to changes in our marketplace. Thank you for joining us today. I will now pass you over to the operator to take your questions.

Operator, Operator

Thank you. Our first question comes from Chris Snyder with Morgan Stanley. Your line is now open.

Chris Snyder, Analyst

Thank you. Maybe just starting off on the tariff announcement from yesterday. I know there hasn't been a lot of time maybe to digest it all. Would just be interested in high level what you think it means for the company? You guys are obviously highly tied to Mexico. My understanding is you're mostly USMCA compliant or largely compliant. And I think most of the competitors here are coming from Asia. So just any thoughts on that and what it could mean from a competitive positioning standpoint?

Neil Ashe, Chairman, President and CEO

Good morning Chris. And thank you for that softball to open the Q&A. So as we said in the prepared remarks, our view of the tariffs is that in practice, they're effectively a supply shock. So our focus, number one, is obviously on serving our customers. From a financial perspective, it is managing the dollar impact first and then the margin impact second. So we have a high-performing distributed global supply chain. So we have worked hard to get to where we are and have the dexterity that we do have. On a relative basis to our competitors, we feel confident in the position that we are in. As you point out, we've got about 18% from Asia. So that is China plus other countries. About half comes from Mexico and almost all of that is USMCA compliant, as you pointed out. So second though, I want to take a step back and walk through kind of how the tariffs actually work and how it will flow through us and frankly, everybody else. As you heard yesterday, the tariffs are immediate. In other words, they will start accruing those as an expense when product starts to come across the border. It will take us a little bit of time, as both Karen and I mentioned in the remarks, we will be taking pricing actions. So those pricing actions will take a little bit of time to be fully implemented. So there's a lag between the time that the price actions take effect and the tariffs we are beginning to pay. Those are balanced a little bit by what we already have in inventory in the U.S., but big picture, there is a lag between those. Finally, there is also a lag from a cash flow perspective. So those tariffs are basically due in 30 days. So we will be paying those faster than we will be collecting ultimately from customers. And those tariffs then need to flow through inventory as it flows through our system and to our customers. So big picture, we will be working to cover the dollar cost first that there will be a little bit of a lag in our ability to do that just because of how the channel works. And there will be some cash flow impact, as a result of the tariffs. But big picture, I want to emphasize we have an outstanding high-performing diversified global supply chain. So we have the dexterity to move throughout our platform, and we will do that going forward.

Chris Snyder, Analyst

Thanks Neil. Incredibly helpful response. Maybe just a follow-up on the market. ABL came in a little bit below seasonality this quarter. I sense there'd probably be some maybe project freezing just with all the cost uncertainty, maybe difficulty quoting and bidding and just getting activity to move forward. So are you seeing any kind of freezing up in the market? And I guess, what do you think or what do you kind of see when you look into the back half of the year, as maybe there is better cost visibility in the market? Thank you.

Neil Ashe, Chairman, President and CEO

Yes. I'll begin, and Karen can add if I miss anything. Overall, we started the year with significant momentum in lighting. It's important to note that Intelligent Spaces is a much more impactful part of our company, so we will focus on lighting for now. We had strong momentum and confidence in the economy for calendar '25 based on our data. However, we began to feel the effects of uncertainty later in the second quarter, as the market dislikes uncertainty. This uncertainty was somewhat counterbalanced when we implemented our first round of price increases, which prompted a typical market reaction, affecting order volume as expected from past pricing activities. So, there is a balance. Your hypothesis about market uncertainty is accurate, and we did observe some impacts. It's still too early to determine the effect of these changes on demand. We will need some time to understand how demand will shape up for the remainder of the year.

Chris Snyder, Analyst

Thank you. That’s really helpful.

Operator, Operator

Our next question comes from Ryan Merkel with William Blair.

Ryan Merkel, Analyst

Hi everyone. I wanted to follow up on Chris' question on tariffs, specifically as it relates to your competitive position. My reaction to the tariffs last night is that it could be favorable for Acuity, just given China had the bigger increase and you're protected in Mexico. Is that the right read, Neil?

Neil Ashe, Chairman, President and CEO

Overall, Ryan, I believe we hold an advantage. Tariffs are widespread, so we need to examine our portfolio and its relation to others more closely. We have confidence in our supply chain, which we've designed to be agile enough to respond to such situations. The normalization of tariffs among Vietnam, Cambodia, and China will affect many competitors who have shifted from China to Vietnam and Cambodia, and we have made similar moves. However, we are larger and more diversified. As long as the USMCA remains intact, Mexico provides us with a significant advantage. Additionally, we have kept a portion of our manufacturing in the U.S., with around 20% of our production taking place here. We continue to enhance productivity in that area. Overall, we feel quite positive about our global supply chain and believe we are better positioned than our competitors.

Ryan Merkel, Analyst

Okay. Got it. That's really helpful. And then a question on gross margin. I guess, it's a two-parter, sorry for that. It looked like gross margins were better than normal seasonality in this quarter. Can you just talk about why that was? And then you mentioned there could be a lag in terms of passing on price. I would just love to get any more color there. Is it going to be significant or do you think that's something that you can manage?

Karen Holcom, Senior Vice President and CFO

Yes, Ryan, I'll start, and then Neil can add on about the tariffs impact. So when you look at the underlying business, the gross margin continues to be strong, and this really is a factor of a couple of things. First, I'd highlight that AIS is continuing to be a bigger part of the company and their gross margins are more favorable. And the impact of the acquisition of QSC had a favorable impact on gross margins. The other thing I'd highlight is the execution of the strategy at ABL around product vitality, service, technology and productivity, that's continuing to have an impact. So the products like you saw today on the presentation with IVO, they're going to continue to drive more value for us, our channel partners and our customers and have lower input costs. So it is really both of those things, a greater portion of AIS contributing favorably, as well as the underlying performance of the Lighting business.

Neil Ashe, Chairman, President and CEO

Yes, to follow up on my earlier comment regarding the lag, we implemented a price increase which is quoted, purchased, and eventually shipped. This is the gap we are discussing. During the pandemic, this gap ranged from 30 to 90 days depending on the timing of our price increases, making it challenging to predict precisely. While it was within that range, it is noteworthy but not particularly decisive. Additionally, I want to ensure that everyone understands our focus on passing along costs. If there is a $100 impact, we will pass on at least $100 in price, disregarding the impact on demand for the moment. This will result in a slight dilution of percentage margins during the periods as we navigate through this. That is why we refer to it as a supply shock, which we also experienced during the rapid inflation phases of the pandemic. However, as Karen mentioned, the quality of our core businesses is extremely high. The performance of our Lighting business stands out significantly compared to any other company in the lighting sector worldwide. Our strategy, which emphasizes product vitality, service, technology, and productivity, has led to expanding margins. Although we will take a pause to digest these tariffs, we will maintain our forward momentum and are confident in our capabilities. Furthermore, we have developed a compelling data and controls business within Acuity over the past five years, including our Electronics business and Intelligent Spaces. These are highly attractive sectors with excellent margin potential and growth prospects. Once we overcome this temporary setback, we expect to see that performance shine again.

Ryan Merkel, Analyst

Got it. Thank you so much.

Operator, Operator

Our next question comes from Joe O'Dea at Wells Fargo.

Joe O'Dea, Analyst

Hi, good morning. Just a clarification on guidance. I didn't hear anything. I haven't seen the slides. Just how are you approaching that?

Karen Holcom, Senior Vice President and CFO

Sure, Joe. We've really been clear about our performance to date. So where we are, we're half of our fiscal year, and we've talked about what we know for the remainder of the fiscal year. As a reminder, we did modify our guidance in Q1 to reflect the addition of QSC. And so that's where we are, and we are just going to continue to execute accordingly for the remainder of the year.

Joe O'Dea, Analyst

Okay. And so given all the uncertainty, it is reasonable to assume that those ranges are still intact for your expectations?

Neil Ashe, Chairman, President and CEO

No change.

Joe O'Dea, Analyst

No change. Okay. Cool. How do you do the pricing on this? When we think about a 50% tariff, is that we take those products and we are just going to go raise prices by 25% to offset it? Or you look across the portfolio, and I think in total, it would mean pricing would have to be up about 5% for the total company to offset something like this. But just curious in terms of how you approach this? And then should we be thinking that these announcements are coming in the next week because you're operating against an April 5 or April 9 kind of timeline?

Neil Ashe, Chairman, President and CEO

We have been clear about our strategy, which involves transitioning to strategic pricing. This means we aim to charge for the value our products provide in the market and stay aware of their competitive positioning. In terms of lighting, we have developed pricing strategies for Contractor Select, Design Select, and made-to-order products. We plan to strategically assess where to set prices to offset any increased costs in goods sold due to tariffs. Our approach is proactive in managing pricing. As previously mentioned, we implemented pricing actions effective through March 31. We became aware of the new tariffs at the same time as everyone else and will respond swiftly to take necessary actions.

Joe O'Dea, Analyst

And then just one on the QSC margin based on some of the details in the Q, I don't know if we're doing this right, but it looks like that was like a 17.4% adjusted op margin. Is that right? And I think previously, like based on acquisition math, it was coming in at about 15%. So anything that you did in a short period of time on those margins?

Karen Holcom, Senior Vice President and CFO

Yes, I think, Joe, directionally, that's pretty close. When we look at QSC, it is highly aligned to the Atrius, Distech business of the legacy AIS business. It is pretty similar in terms of growth. It's similar in terms of margin profile, not quite as strong yet, but it's pretty close. So I think you're directionally there.

Joe O'Dea, Analyst

Okay, thanks a lot.

Neil Ashe, Chairman, President and CEO

Yes, Joe, we were clear that we're excited about the opportunities here. We'll focus on growth, but we do believe that there is margin opportunity going forward.

Operator, Operator

Our next question comes from Brian Lee at Goldman Sachs.

Brian Lee, Analyst

Hi everyone. Good morning, and thank you for taking my questions. I have a lot of thoughts on tariffs, so I'll add one more. It is still very early, but what are your opinions? Neil, you mentioned that you have already factored in tariffs through the end of March, and you observed the customer behavior you anticipated. Can you elaborate on that? Also, considering that these tariffs might be a point of negotiation, do you think there is a risk that customers may hold off on placing orders, particularly for longer lead time projects, in the hope that tariffs might decrease or that negotiations with certain countries might lessen the impact over time?

Neil Ashe, Chairman, President and CEO

Yes, Brian. Let me explain normal customer behavior that I mentioned earlier. Each time we implement a price increase, it tends to trigger some additional activity that would have occurred over the next month or two. We see an increased order rate from customers who are ready to proceed with their projects to secure the current prices. They might make their purchases sooner than planned to lock in those costs. This is what we've observed with the price increases already in effect. We believe the impact will be mostly felt in our fiscal third quarter. To give you an idea of the scale, looking ahead, we don’t know whether these conditions will be permanent or just temporary, or if they'll be open to negotiation. Therefore, we’ll base our actions on what we currently understand. Our approach is to focus on what the administration is actually doing, and they have already enacted these tariffs. As a result, we are adjusting our strategies accordingly. Additionally, this situation is likely to create some uncertainty in the market for those dependent on these orders in the short term. We’ll determine how this unfolds; it might not be significant, which is why we noted some usual order activity related to the first price increase. Anecdotally, we haven't had time to gather extensive customer feedback yet, but in a conversation with a major distributor yesterday, they mentioned they were handling 120 different price increase letters. Clearly, these effects extend beyond our company.

Brian Lee, Analyst

I appreciate the information. I'd like to follow up on the QSC integration. Since you are two months into it, can you provide an update on the progress you are making? Do you have any insights into potential cost or product synergies that might come up later this year or next year? Thank you.

Neil Ashe, Chairman, President and CEO

Yes. Taking a step back, we are excited about our developments with Intelligent Spaces, which aims to create smarter, safer, and greener connections between the edge and the cloud using disruptive technologies like Atrius, Distech, and QSC. QSC aligns perfectly with us regarding strategy, product, and culture. We anticipated this, but each aspect has surpassed our expectations so far. As Karen mentioned in discussing margins, we have nearly completed the integration of the enablement function, which is enhancing our margin opportunities. QSC is performing strongly in the marketplace, and the feedback indicates that the team is thrilled to be part of a larger platform. We have unified our commercial, product, and engineering teams to brainstorm about end-user outcomes. We are confident about these developments but prefer to let the marketplace drive them rather than pushing aggressively. Currently, we have a run rate of approximately $1 billion in our data and controls business, and Intelligent Spaces has the potential for continued strong growth and margin expansion.

Brian Lee, Analyst

All right. Thanks a lot. I’ll pass it on.

Operator, Operator

Our next question comes from Tim Wojs at Baird. Tim, your line is now open.

Tim Wojs, Analyst

Can you hear me?

Neil Ashe, Chairman, President and CEO

Good morning Tim.

Tim Wojs, Analyst

Sorry about that. I have two clarification questions. First, can you quantify the price you set before the tariff announcements yesterday, in terms of percentages?

Neil Ashe, Chairman, President and CEO

Yes. We're not going to disclose the percentages for competitive reasons, but you can think of it as lower middle-single digits.

Tim Wojs, Analyst

Okay. And then I guess from a capital kind of allocation perspective, just with the leverage that you kind of took for QSC, how do you think about deploying cash flow over the next, call it, 12 months to 18 months? Are buybacks still kind of in play? Do you kind of prioritize debt pay down? Just how are you kind of thinking about the cash flow kind of utilization over the next 1 year, 1.5 years?

Neil Ashe, Chairman, President and CEO

Yes. Let's start with the obvious. We generate a significant amount of cash and have substantial financial capacity. The performance of our business will keep supporting this cash generation. We have been clear about our priorities: we aim to grow our existing businesses and expand through mergers and acquisitions. We have increased our dividend, and we will repurchase shares, sometimes in larger amounts and sometimes less. Currently, our capacity is very high, positioning us well for whatever occurs. If there is a market dislocation that makes acquisitions more appealing, we will consider those opportunities. We have a strong pipeline. If market conditions negatively impact our shares, we are ready to act aggressively. Ultimately, we are capable of pursuing all of these strategies. I feel very optimistic about our current capital positioning, with all options available to us.

Tim Wojs, Analyst

Okay, great. Thanks a lot for the color.

Operator, Operator

Our next question comes from Christopher Glynn at Oppenheimer.

Christopher Glynn, Analyst

Thanks, good morning everyone. Just following up on Tim's question there with all options being available, being a clear punchline there. Just wanted to talk about how is the pipeline in terms of scope and breadth of activity? And are you in the market for another QSC? A, does it exist? B, do you have enough on your plate right now? Or would something like that be within the square of reasonable expectations over the next 12 months to 24 months, call it?

Neil Ashe, Chairman, President and CEO

Yes, that's a good question. Financial capacity isn't an issue for us, as we've noted. Additionally, our operational capacity is quickly improving. The company has gained valuable insights from the integration of QSC, and I am confident in our ability to pursue more opportunities similar to QSC going forward. In the next six to twelve months, there isn't anything in the pipeline that matches the scale of QSC. However, we do have appealing opportunities in our short-term pipeline that we will actively pursue. To address the qualitative aspect of your question, we are indeed looking for another QSC and such opportunities do exist. We believe we can successfully add more companies like that to our portfolio, which will enhance their value as part of our strategy. In summary, we have ample capacity. While the short-term pipeline does not include an acquisition of QSC's scale, we will certainly be on the lookout for similar acquisitions in the long term.

Christopher Glynn, Analyst

Okay. And also have kind of a pan-out question. Acuity has had in its long history some years of accelerated performance and competitive differentiation. I think as you describe every quarter right now, it is a different shade of drivers right now to be sustainable. But competitors see what you are doing, you have some resource competitors. Not that it's easy, you've brought a lot of diverse talent and tough to replicate, particularly with the benefits of scale. But I'm curious if you're seeing any competitors start to demonstrate times of raising their game as well?

Neil Ashe, Chairman, President and CEO

Yes, I think competitors are definitely reacting. It's interesting because during our quarterly business review, we specifically pointed this out to the Lighting team. We can't assume that we will keep outpacing competitors without them responding. So the answer is yes, they are reacting, but that tends to be on the margins rather than directly challenging our core. I'm not aware of any company that can execute our strategy as we do. Our electronics portfolio is key to differentiating the Lighting business in the market. The ability to manage everything from the driver to the sensor, to the control and software, and then to the cloud with Atrius data lab, is something I believe is unique in the marketplace. This capability allows us to offer solutions that others can't match. We may intentionally lose on the edge to a very low-priced competitor that lacks features, but we will consistently win over time with the solutions that are significant in the market. Overall, our entire company essentially operates as a data and controls company with the luminaire business, rather than just a luminaire business with a small electronics component. This is distinct in the marketplace.

Christopher Glynn, Analyst

Thanks a lot for that Neil.

Operator, Operator

Our next question comes from Jeffrey Sprague at Vertical Research.

Jeffrey Sprague, Analyst

Good morning everyone. A lot of ground covered. I just want to come back to kind of the early read on maybe demand destruction or customer behavior. I mean, given lights are kind of late in the project, right? I assume kind of larger projects have continued to move forward at least up to this point. So this weakness you are seeing is that more smaller rental projects or, in fact, larger projects are slowing down, that sort of dynamic? Is there any color you could shed there?

Neil Ashe, Chairman, President and CEO

I believe the most straightforward observation we can make in the short term involves the timing of orders. It seems that some customers may have delayed orders during the second quarter to assess the situation, only to accelerate those orders when they noticed our price increases. This provides a simple explanation for the fluctuations we are seeing. Looking ahead, we will need to evaluate the overall impact on demand based on the decisions made by customers. Currently, we are in a steady-state approach and feel confident in our ability to perform in a unique way. However, it's still too early to determine the full effect on demand.

Jeffrey Sprague, Analyst

Great. And you were quite clear about sort of the normal lag between when you raise price and when you get it and how it's going to work through inventory and everything else. But I'm wondering, can you shorten that window and not let customers, for lack of a better term, 'over order' and get in front of kind of the cost wave to kind of accelerate the catch-up on your end?

Neil Ashe, Chairman, President and CEO

Jeff, you can feel confident that we are doing everything in our power to do that.

Operator, Operator

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

Neil Ashe, Chairman, President and CEO

Thank you all for joining us this morning. It is a pleasure to be the first major company to report after yesterday's news. I want to take a moment to express our pride in the company we are building and our commitment to that path. We have a leading lighting and lighting controls business with an exceptional electronics portfolio that stands out in the market and is delivering strong results. Our Intelligent Spaces business offers a unique approach to combining data from built environments to deliver positive outcomes for users and those providing those spaces. Overall, we have a high-quality business with a clear strategy and a proven ability to execute across various markets. We are determined to create differentiated value. Thank you for your time this morning, and we look forward to updating you next quarter.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.