Earnings Call Transcript
ACUITY INC. (DE) (AYI)
Earnings Call Transcript - AYI Q4 2021
Operator, Operator
Good day and thank you for standing by. Welcome to the Acuity Brands Fourth Quarter Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be 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. Please go ahead.
Charlotte McLaughlin, Vice President of Investor Relations
Thank you, Shannon. Good morning. And welcome to the Acuity Brands’ fiscal 2021 fourth quarter and full year earnings call. As a reminder, some of our comments today may be forward-looking statements based on management’s beliefs and assumptions and information currently available to management at this time. These beliefs are subject to known and unknown risks and uncertainties, many of which may be beyond our control, including those detailed in our periodic SEC filings. Please note that the company’s actual results may differ materially from those anticipated and we undertake no obligation to update these statements. Reconciliations of certain non-GAAP financial metrics with their corresponding GAAP measures are available in our 2021 fourth quarter earnings release, which is available on our Investor Relations website. With me this morning is Neil Ashe, our Chairman, President and Chief Executive Officer, who will provide an update on our strategy and detail highlights from the last quarter and the last 12 months, as well as Karen Holcom, our Senior Vice President and Chief Financial Officer, who will walk us through our earnings performance. There will be an opportunity for Q&A at the end of the call. For those participating, please limit your remarks to one question and one follow-up if necessary. We are webcasting today’s conference call live. Thank you for your interest in Acuity Brands. I will now turn the call over to Neil Ashe.
Neil Ashe, Chairman, President and CEO
Thank you, Charlotte. Good morning, everyone. Thank you for joining us to discuss Acuity Brands. I am pleased with our company’s performance in the fourth quarter of fiscal 2021. In a challenging global supply chain environment, we grew sales by 11% and expanded our gross profit and operating profit margins. Our performance demonstrated our focus on product vitality and customer service. We allocated capital effectively by closing the acquisition of OSRAM’s North American Digital business and have created permanent value for our shareholders through the repurchase of company shares. 2021 was a pivotal year for us as we advanced our corporate transformation and I’d like to take a few minutes to recap some of those achievements. We returned the company to growth. We grew sales in the third quarter, the fourth quarter, and the full year, and we expect this growth to continue. We expanded gross profit margins for the full year despite a challenging global environment. We realigned our businesses into ABL, our Acuity Brands Lighting and Lighting Controls business, and ISG, our Intelligent Spaces Group. This alignment creates the necessary strategic focus on each business and allows us to develop the leadership teams that will deliver on their potential. We generated strong cash flow and allocated capital in a way that creates permanent value for shareholders. We held our first-ever Investor Day. We built a strong and diverse leadership team and are attracting new talent throughout the organization. Our continuing improvements around ESG are central to our strategy. We have made significant progress by reaching carbon neutrality in our operations and by committing to reduce 100 million metric tons of carbon from our put-in-place products and services by 2030. We’ve made progress on diversity, equity, inclusion, and governance, and you can read more about all of this in our upcoming 10-K, our annual report, our Annual EarthLIGHT Report, and our proxy. And finally, we’ve positioned ourselves well for 2022 and beyond. I now want to update you on our ongoing transformation in each of our businesses and I will start with ABL. We’ve had a good year in ABL. Our focus on innovation through product vitality and increasing our service levels for the benefit of our customers has delivered strong results, and we are continuing our efforts to drive our product expansion. The Compact Pro High Bay, which we’ve discussed before, continues to deliver from both a revenue and margin perspective in the high growth industrial sector. Our product vitality efforts include improvements to existing products and the introduction of new ones. In the fourth quarter, we introduced the HomeGuard LED Security Floodlight. It’s an exciting addition to our Contractor Select portfolio. This new platform offers a technology upgrade, higher efficacy, greater safety options, and ease of installation. Sales have been strong. We are off to a great start in a category where we currently have low share and strong growth opportunities. We are also continuing to increase our service levels and deliver productivity improvements. We are using better, smarter, and faster processes and technology for more efficient customer service. Today, I’d like to focus on Agile. Agile is our commerce platform used by our channel for all the key steps that they need to do business in Lighting and Lighting Controls, from finding products to creating solutions for large projects, to bidding on those projects, placing orders, and finally tracking those orders to completion. Our team is constantly improving Agile. One of our key areas of focus has been to improve the quality of the product data that we provide. This improvement provides many tangible benefits, including ease-of-use and improved order accuracy. Another area of focus that I’ve spoken about before is order status. I bring this up again because it has been essential during this complicated period. We were able to provide clear information to our channel about their order status, which allows us to better meet their needs in the face of global supply chain challenges. These examples address significant historical pain points and are foundational, which allows us to improve our service levels today and in the future. As we enter 2022, the priorities for Trevor and the rest of the ABL team remain the same: maintain high product vitality, continue to elevate our service levels, and continue to use technology to differentiate ourselves. Now moving to the Intelligent Spaces Group. The mission of ISG is to use technology to solve problems in spaces by making them smarter, safer, and greener. We believe that each of these provides ample opportunities for future growth. This tech control is a collection of open protocol products necessary to effectively operate spaces. Atrius provides applications that use data to deliver value in those spaces. We are having success across Europe and North America with our Distech platform, especially around campuses, data centers, and spaces that require significant control over their facilities' operations. We continue to add products to the ISG portfolio. During the quarter, we added the Eclipse Connected Thermostat, an open protocol device that reduces installation costs, helps manage energy costs, and improves comfort in spaces. Now before I turn the call over to Karen, I’d like to conclude with thoughts on our transformation and the opportunities ahead. In the face of a challenging global environment, we have demonstrably improved our company and its performance. We’ve demonstrated our ability to grow sales through innovation and our ability to service our customers. We’ve improved our gross profit margins through product and productivity improvements. We have improved our operating profit margin by leveraging our costs. We’ve allocated capital efficiently through reinvestment in the business, acquisitions, and share repurchase. We have the talent and the tools to build upon the operating strength we have developed over the last 18 months. As we look forward, we expect to continue this performance. We are strategically positioned at the intersection of sustainability and technology. We’ve assembled a world-class team. We’ve demonstrated the ability to both build and acquire businesses. We have strong organic cash generation and we have demonstrated that we know what to do with it to create value. Now I will turn the call over to Karen, who will take a deeper dive into our performance and outlook for 2022 and then I will be back for Q&A and closing remarks.
Karen Holcom, Senior Vice President and CFO
Thank you, Neil. I want to start by recognizing the accomplishments of the team this year. We’ve made progress on our transformational priorities, improved the financial performance of the business, and continued to thoughtfully allocate capital. Our fourth quarter performance was solid. Net sales were $992 million, an increase of 11% compared to the prior year. This performance was driven by strong customer demand, improved execution across our go-to-market channel, and the addition of the OSRAM acquisition, which added approximately 200 basis points. Gross profit margin was 42.2% for the fourth quarter of fiscal 2021, an increase of 10 basis points over the prior year, despite rising costs from raw material, electrical component supply chain interruptions, and a significant escalation of freight costs. We were able to offset the increased cost with higher sales volume, product and productivity improvement, and a benefit from price increases. I am extremely pleased with the team’s execution around our gross profit margin that led to such a great result in a volatile cost environment. Reported operating profit margin was 13.4% of net sales for the fourth quarter of fiscal 2021, an increase of 150 basis points over the prior year. Adjusted operating profit margin was 15.8% of net sales for the fourth quarter of fiscal 2021, an increase of 110 basis points over the prior year. The majority of this improvement was driven by the higher gross profit margins and leverage of our operating expenses. The effective tax rate for the fourth quarter of fiscal 2021 was 21.9%, compared with 24.5% in the prior year due to the impact of several discrete items. Finally, we saw a significant improvement in diluted earnings per share for the fourth quarter of fiscal 2021. Diluted EPS of $2.72 increased $0.85 or 46% over the prior year and adjusted diluted earnings per share of $3.27 increased $0.92 or 39% over the prior year. Our share repurchase program favorably impacted diluted EPS by $0.24 versus the prior year. Before I move on to the segment results, I want to highlight a few numbers in our full year 2021 operating results. Net sales were $3.5 billion, an increase of 4% compared to the prior year, driven by improved sales performance in the second half of 2021. We delivered a full year gross profit margin of 42.6%, an increase of 40 basis points over the prior year. Reported operating profit margin was 12.4% of net sales for fiscal 2021, an increase of 180 basis points over the prior year, with adjusted operating profit margin at 14.6% for fiscal 2021, an increase of 90 basis points over the prior year. The effective tax rate for fiscal 2021 was 22.7%, compared with 23.5% in the prior year. We expect this rate to be approximately 23% for the full year in fiscal 2022 excluding any unusual discrete items and assuming no change to the corporate tax rate. Diluted earnings per share of $8.38 was a 34% increase over the prior year and adjusted diluted earnings per share of $10.17 was a 23% increase over the prior year. We had 36.6 million diluted shares outstanding during fiscal 2021, with our share repurchase program favorably impacting diluted EPS by $0.57 versus the prior year. Moving on to our segments. During the quarter, the Lighting and Lighting Controls segment delivered a sales increase of 11% versus the prior year. This was driven by improvements within our independent sales network, which grew approximately 10%, and the direct sales network, which grew about 15% in the current quarter, as a direct result of our strong go-to-market efforts, as well as recovery in the construction market. Our corporate accounts channel continued the positive momentum and saw an increase in sales of 16% compared to the prior year, as large retailers move forward with previously deferred renovation spending. The performance in this channel is dependent upon our customers’ renovation cycles and can be uneven quarter-to-quarter. Sales in the retail channel declined approximately 20% as compared to the prior year and will continue to be impacted through the remainder of the calendar year, as a result of a customer inventory rebalancing. The retail channel continues to be an attractive channel for Acuity. During the quarter, we closed the acquisition of OSRAM’s DS business. The acquisition contributed around 200 basis points of growth to ABL revenue and we expect a similar level of impact in 2022. Now moving to ABL operating profit for the fourth quarter of 2021, which increased 23% to $149 million versus the $122 million in the prior year with operating profit margin improving 150 basis points to 15.8%. Adjusted operating profit for the fourth quarter of 2021 improved 21% versus the prior year, with adjusted operating profit margin improving 140 basis points to 16.8%. 2021 was a year of improvements. To summarize the full year, the ABL business saw sales growth of 3% to $3.3 billion versus the prior year and an improvement across profitability metrics. Operating profit for the full year increased 12% to $476 million versus the prior year, with operating profit margin improving 110 basis points to 14.5%. Adjusted operating profit for fiscal 2021 improved 10% to $515 million versus the prior year and adjusted operating profit margin improved 100 basis points to 15.7%. Now, moving on to the results for our Intelligent Spaces Group. For the fourth quarter of 2021, sales in Spaces increased approximately 24% to $51 million, reflecting continued demand with strength across our building and HVAC controls. Spaces operating profit for the fourth quarter of 2021 increased $3.6 million to $2 million versus the prior year. Adjusted operating profit for the fourth quarter of 2021 of $6 million was $3.9 million greater than the prior year as a result of continued sales growth. The Spaces team had a great year. We recruited an incredible leadership team and broke the business out into a standalone segment. The team ended fiscal 2021 with sales growth of 21% to $190 million versus the prior year. Operating profit increased $13.8 million to $9.9 million versus the prior year, and operating profit margin of 5.2% for fiscal 2021 improved 770 basis points versus the prior year, with adjusted operating profit margin improving 400 basis points to 13.5%. Now turning to cash flow, we continue to generate solid cash flow. The net cash from operating activities for fiscal 2021 was $409 million. This was a decrease of $96 million or 19% compared to the prior year, largely due to the increase in working capital needed to support the higher level of sales. We invested $44 million or 1.3% of net sales in capital expenditures during fiscal 2021, and we continue to believe that capital expenditures of around 1.5% of net sales is an appropriate annual level as we head into 2022. We continue to allocate capital effectively by prioritizing growth investments, M&A, maintaining our dividend, and creating permanent value for shareholders through share repurchases. During the year, we repurchased approximately 3.8 million shares of common stock for $435 million at an average price of $114 per share. We have around 3.8 million shares still remaining under our current Board authorization. I would now like to spend a few minutes reviewing some of the most important conversations around our company and offer insight into how we are thinking about them. This is a complicated global environment and input costs have been changing frequently, for example, freight cost. I’d like to use this as a window into how we are managing these challenges. We balance our long-term freight contracts, which are at favorable cost, with additional capacity at current cost to deliver high levels of service to our customers. We have passed along some of these costs through price increases and we are balancing delivering on our margin expectations and delivering on our most important promise which is to be the company which our customers can rely upon. As we head into 2022, we are confident in our businesses and in our team. We expect ABL to grow net sales in the high-single digits for the full year of 2022. We expect ISG to deliver net sales growth in the mid-teens. We expect a 42% plus annualized gross profit margin for the full year of 2022 and we believe we can continue to leverage our operating cost as we increase net sales. Finally, we will continue to allocate capital effectively. We are transforming our business and focusing on our customers, our investors, and our associates. We enter 2022 a much stronger company and with clear opportunities.
Operator, Operator
Thank you. Our first question comes from Tim Wojs with Baird. Your line is open.
Tim Wojs, Analyst
Hey. Hey, everybody. Good morning and nice job here. Congrats on the fiscal. I guess maybe just to start, the topic de jour is really the supply chain, and it looks to us and you have managed it really well. If you can maybe talk through a little bit at just some of the key pinpoints that you are seeing from a supply chain perspective, kind of what components are constrained and how you are managing some of the kind of trends, specific kind of transportation issues? And I guess, we hear kind of broad chip constraints, but I guess, I am curious how broad that pressure is for the chips that you actually buy?
Neil Ashe, Chairman, President and CEO
Thank you, Tim, for your comments and your question. This is indeed a significant topic right now. We're facing one of the most challenging global environments we've experienced in recent memory. Regarding the supply chain, as Karen mentioned, we have not seen consistent price increases across all our commodities or a steady lack of availability. It has been unpredictable throughout this process, and we anticipate this will continue for at least the next 12 to 18 months. Our ability to adapt has been crucial for delivering to our customers and maintaining our margins. Chip constraints, a broad term, impact us in various ways depending on the different chips we use in our products. We've proactively engaged with our suppliers to establish strong partnerships, which has improved our reliability and predictability. These challenges have affected us differently; for instance, delays in developing specific sensors due to chip availability have impacted some orders. However, we've managed to sequence our efforts effectively to achieve the results we've delivered. As I've mentioned, we don't foresee immediate improvements in the situation. We are utilizing every option available to continue being a reliable partner for our customers and to meet our margin goals.
Tim Wojs, Analyst
Okay. Okay. That’s great. And then maybe just kind of as a follow-on, on pricing, is there any way to provide some context around pricing? I noted it wasn’t really like the primary driver of the offset that you had against some of the cost headwinds. So, I guess, what was the benefit in the fourth quarter and how are you thinking about the contribution from price to revenue growth in fiscal 2022?
Neil Ashe, Chairman, President and CEO
We have been able to implement price increases, and we are starting to see some benefits from that in the fourth quarter, helping to offset the rising costs. The industry has undergone several rounds of price increases, and we have executed three of them, which are now contributing positively. These increases will accumulate over time as we progress further. Our distribution channels are currently placing orders, which creates backlog for us, leading to future shipments and ultimately net sales. We are working to balance this relationship. As I mentioned in the last call, I want to stress that we aim to be a reliable partner for our customers. This means we prioritize regular shipping and strive to be predictable regarding their costs as they plan their growth projects. We are seeing the benefits of our price adjustments, which are helping to mitigate some of the cost challenges, along with ongoing improvements in our products and productivity that also support our performance.
Tim Wojs, Analyst
Okay. Okay. Great. Well, congrats again and good luck in fiscal 2022. Thanks everybody.
Neil Ashe, Chairman, President and CEO
Thank you.
Karen Holcom, Senior Vice President and CFO
Thank you.
Operator, Operator
Our next question comes from Ryan Merkel with William Blair. Your line is open.
Ryan Merkel, Analyst
Hi, everyone. Thanks for taking the questions.
Neil Ashe, Chairman, President and CEO
Good morning, Ryan.
Ryan Merkel, Analyst
Good morning. I would like to follow up on the gross margin. What are some of the significant positives and negatives for fiscal 2022 as you aim for 42%? Passing along price is one factor, but what are some of the other key drivers?
Neil Ashe, Chairman, President and CEO
Karen, do you want to take that?
Karen Holcom, Senior Vice President and CFO
Sure. Yeah. Ryan, as we mentioned, we do have price as one of our levers that we used to offset the rising cost. It’s not the only lever. We focus heavily on our product and productivity improvements. We’ve used the Compact Pro High Bay as an example of things that we do to our portfolio to remove cost, to make it more efficient, to make it easier for the customer to install, and that ultimately impacts our profitability. We also worked with our supply chain to improve the productivity of their performance. So, there’s a lot of different levers that we are using. And then, finally, we will get some benefit from sales growth, as well as we are able to leverage some of the volume across our facilities.
Neil Ashe, Chairman, President and CEO
And Karen, I'd like to expand on that by providing some context regarding our transformation. When I joined the company, my focus was on gross margin to show that we could effectively manage price-cost relationships, and I believe we have succeeded in a challenging environment. As we begin to return the company to growth, as Karen noted, we are also showing our ability to leverage costs and enhance our operating margins. I am optimistic about our current position, and in the future, we will begin to discuss operating profit, EBITDA, and cash flow more frequently.
Ryan Merkel, Analyst
Very helpful. Okay. And then second question, I guess, it is a two-part question on China, so can you remind us what percent of sales and what percent of COGS you import from China? And then, secondly, do you expect any shortages as China is facing a power crunch in some of the factories just aren’t running?
Neil Ashe, Chairman, President and CEO
It’s a good question. First of all, our supply chain is quite dynamic. While we don't provide specific numbers, you can think of it as approximately 20% from Asia, 60% from Mexico, and 20% from the U.S. and Canada, along with some additional contributions from North America. We utilize this flexibility in our supply chain to our advantage, especially in challenging times. As we enhance our new product portfolios, we've not only increased our vitality but also our flexibility, allowing for manufacturing in both Asia and North America. Currently, our main limitation is access to containers, which is why freight was mentioned. Everyone is facing this issue. We have planned ahead for this and secured both availability and pricing for certain periods, and we are now accelerating some of that. Additionally, we should consider the power issues in China alongside the various ways our supply chain is affected by global challenges, and we will adapt accordingly, just like we are addressing all other obstacles.
Ryan Merkel, Analyst
Perfect. I will pass it on. Thanks. Nice quarter.
Neil Ashe, Chairman, President and CEO
Thank you.
Karen Holcom, Senior Vice President and CFO
Thank you.
Operator, Operator
Our next question comes from Christopher Glynn with Oppenheimer. Your line is open.
Christopher Glynn, Analyst
Yeah. Thanks. Good morning. Congrats on a great year. I am curious about the demand environment generally; appreciate the segment top-line guidance. As we look at linearity and moving into the new quarters, should we just use normal seasonality as a guide or are there any other key prevailing puts and takes?
Neil Ashe, Chairman, President and CEO
Thank you for the question, Chris. I believe the demand level will slightly lessen the usual seasonal effects. Therefore, we will likely see increased growth in the early part of the year, where we have more certainty, and we anticipate some changes in the latter half of the year. This is one reason we provided our full-year outlook. Given the current state of the world, it's important to note that nothing feels normal at this time. We are adapting, as evidenced by our performance. Although we will eventually reach a new normal, we haven't reached that point yet. Regarding the broader demand question, the outlook we shared for the Lighting and Lighting Controls business reflects our confidence in our business and its trajectory for the full year. We will navigate a series of steps to reach our goals throughout the quarters; some results may be slightly better, while we anticipate some will be a bit lower, but we will reach our target.
Christopher Glynn, Analyst
Okay. And my follow-up is just on kind of margin puts and takes. Clearly, things got worse since your third quarter in the macro and in particular in August and September. You may have had a little help on the timing of your fiscal year relative to how people will report later in the month. So just curious, you do also have ramping price realizations. Do you see the net-net of incremental supply chain logistics challenges and incremental price kind of as your best call being neutral on the sequential?
Neil Ashe, Chairman, President and CEO
So, Chris, let me abate your premise. So, when we presented gross margin in the second quarter, we highlighted that we have the highest margins in the industry by a significant margin and we delayed our price increases as a result. And now you are starting to see us do two things in tandem, which is one, realize price and two, mitigate the impact of cost changes, which as Karen indicated are volatile. They are not straight lines in one direction or the other, and I don’t think our performance is different based on a month, so I am not sure that’s accurate. Having said that, as we look forward, we’ve balanced the year going forward around the expectations that Karen outlined. So ABL will continue to grow in the high single digits, ISG will continue to grow in the mid-teens, and we will continue to deliver around the 42% greater gross margin, which is a demonstration of us managing that relationship. Lastly, we’ve demonstrated we can turn net sales into profits and cash flow. And that’s ultimately how we create value; we will grow net sales, we will turn it into cash, and we will pay down the balance sheet not as fast. So that’s our long-term model for value creation.
Christopher Glynn, Analyst
Thanks for the color.
Operator, Operator
Thank you. Our next question comes from Chris Snyder with UBS. Your line is open.
Chris Snyder, Analyst
Thank you. I also wanted to follow up on the gross margin comments. The guidance for next year is 42% plus, which is basically in line with fiscal Q4 levels. Can you maybe talk about the quarterly cadence here? It feels like over the next couple of quarters cost pressure is increasing and maybe get some back half relief. Is that the cadence that we should expect with gross margins and could we see quarters below 42% and then others above 42% that kind of shake out in that 42% plus?
Karen Holcom, Senior Vice President and CFO
Thank you for joining us today, Chris. We believe that achieving over 42% for the full year is possible, although there will be some fluctuations between quarters. As our sales grow, we expect to gain leverage from the higher costs. We will also benefit from the timing of price increases, and we are actively managing the cost increases we encounter. As mentioned earlier, we have some advantages from longer-term contracts, but we still need to purchase items on the stock market, which can be quite unpredictable. Therefore, you can expect variability, and we are focused on managing towards that over 42% for the full year.
Chris Snyder, Analyst
I appreciate that. With cost pressures increasing over the next few quarters, it seems like commodity realization is likely higher. Some of your long-duration freight contracts are probably going to replace at a higher amount. I understand the company implemented three price increases. Has the one from July not completely taken effect yet? I believe the September increase was more targeted. Is it just that, or does it come with a delay? Even though costs are rising in the upcoming quarters, is pricing improving gradually without needing further price hikes? I apologize if that's unclear.
Karen Holcom, Senior Vice President and CFO
No. I think I understand what you are asking. As Neil said, we do have a backlog. So some of the backlog will have different impacts from the price increase. We had our first price increase announced in March, which was impacting late in the fourth quarter very little and we saw some of that realization in our results this time. The other two price increases are, if you will, sitting in the backlog, and then can translate into shipments and net sales as we go into fiscal 2022, so that’s where you see a little bit of that timing difference. So certainly, we didn’t see the benefit of all the price increases that we’ve announced in the fourth quarter and do expect that to increase sequentially as we head into next year.
Chris Snyder, Analyst
Thank you.
Karen Holcom, Senior Vice President and CFO
Thank you.
Operator, Operator
Our next question comes from Jeff Sprague with Vertical Research. Your line is open.
Jeff Sprague, Analyst
Thank you. Good morning, everyone. I wonder if you could just speak a little bit to the kind of just the customer conversation and the mix dynamics that you are seeing in the business. I was interesting that the renovations side of the equation and deferred maintenance might be coming back. Is there something kind of more ongoing to glean from that? What’s your initial conclusion on that?
Neil Ashe, Chairman, President and CEO
Yeah. Jeff, that’s a great question. And just as an interesting anecdote, there is a construction project in the office above us right now that we have to go shutdown for the call, because you wouldn’t have been able to hear it. So it turns out office renovation, at least in the Atlanta market, is strong. The trends that we identified before have continued. So the high growth areas around industrial, for example, where there is a lot of new investment, have continued. We’ve seen, as Karen indicated, through the disaggregated revenue. We’ve seen strength pretty much across the board through other channels, which means that there is strength in really all of the main categories. So demand has not been an issue for us, and we don’t think it’s going to be an issue for us for the foreseeable future.
Jeff Sprague, Analyst
Are there any other verticals you would point out? You touched on industrial a couple of times just now in your opening remarks. What about education and healthcare, et cetera? Are there any other kind of discernible trends emerging?
Neil Ashe, Chairman, President and CEO
Thank you for your question. Let me provide a bit more detail. Education has performed very well, and while we expect some seasonal effects going forward, we believe it will remain strong, positioning us well for continued strength in the upcoming education season. In healthcare, we see opportunities to increase our market share, and we have highlighted the HomeGuard LED Light as an area where we can expand, given our relatively low market share there. One of the key advantages of our business is our extensive reach, which enables us to capitalize on strengths in expected areas. I also want to mention that we anticipate ongoing demand in the renovation market, and we are well-prepared for that as well.
Jeff Sprague, Analyst
Sorry, just one quick housekeeping one. Let me just clarify, disaggregated revenues will primarily be proportionately running to each of those, maybe perhaps excluding retail? How do you think about that?
Karen Holcom, Senior Vice President and CFO
No. You see the OSRAM retail in the other channel in the ABL disaggregated revenue line.
John Walsh, Analyst
Yeah. Good morning, everybody, and nice quarter.
Neil Ashe, Chairman, President and CEO
Thanks, John.
Karen Holcom, Senior Vice President and CFO
Thank you.
John Walsh, Analyst
I guess maybe the first question is, it looks like inventories ticked up sequentially. Obviously, you had good growth this quarter, better than we were all modeling. You are talking about good growth the first half of your fiscal 2022. Could you maybe talk about if you were building some buffer inventory there so that you get ahead of any kind of incremental change in the supply chain or is it that kind of stuff that you know is going out the door for maybe some of your customers? I don’t know if that would fall under corporate or somebody else there in the disaggregated revenue?
Karen Holcom, Senior Vice President and CFO
Yeah. So, John, there are two things going on in inventory. One would be exactly what you described; we are trying to build a little bit ahead for inventory to serve as the demand that we see. So you see a little bit of impact to that in the quarter, but you also see the addition of the OSRAM inventory. So that’s also coming through in that inventory line as the inventory that we purchased with the acquisition and the components that go into making this product. Days, yeah, days are only up because of OSRAM. Days on the other portion of the business are steady.
John Walsh, Analyst
Got you. Okay. That makes sense. And then, you talked a little bit, you have talked a lot about supply chain. In an earlier question, you did highlight how you both have your operations, your manufacturing in Mexico and the United States. Can you talk about kind of your labor availability in those different regions if you are seeing anything different? I think most of us might not be as close to the Mexico labor markets, but obviously, the U.S. labor markets are very tight right now? We just love to understand kind of the dynamic there and what you are seeing from your operations?
Neil Ashe, Chairman, President and CEO
Let me address that. First, regarding the U.S. labor market, it is indeed tight. I believe that many individuals are taking a moment to reevaluate their career paths in light of the pandemic and other life changes. We're actively striving to be an employer that attracts top talent, ensuring that everyone, from maintenance workers in our facilities to salespeople and managers, can perform their best work. The labor availability has been limited, and I anticipate wage inflation over the next year as we navigate this challenge. We are closely monitoring the situation. In Mexico, we have a stronger presence and have established ourselves as a leader in IDX, particularly in response to COVID, vaccinations, and the overall experience of our associates. We feel a strong connection with our team there, and unlike the U.S., we've not experienced the same level of labor tightness in Mexico.
John Walsh, Analyst
Great. Really appreciate the detailed responses. Thank you.
Neil Ashe, Chairman, President and CEO
Thank you all again for joining us and thank you for your interest in Acuity. We feel like that our fiscal year just completed in August is a really important milestone in the transformation of the company. As we indicated, we’ve returned the company to growth, we’ve demonstrated the ability to deliver margins, we’ve demonstrated the ability to leverage our expenses as we grow our net sales, and we are confident about both of our businesses ABL, the Lighting and Lighting Controls business, and ISG, the Spaces Group. And so we expect this to continue to be a challenging global environment, and we are pleased with our position in it going forward. So thank you for your time and we will look forward to catching up with you in a few months.
Operator, Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect.