AYI 10-K & 10-Q changes, risk factors and insider trading

Continual introductions of new products and solutions, services, and technologies, enhancement of existing products and services, and effective servicing of customers are key to our competitive strategy. The success of new product and solution introductions depends on a number of factors, including, but not limited to, timely and successful product development, product quality, market acceptance, including entrance into new verticals, and our ability to manage the risks associated with product life cycles, such as additional inventory obsolescence risk as product life cycles begin to shorten, new products and production capabilities, effective management of purchase commitments and inventory levels to support anticipated product manufacturing and demand, availability of products in appropriate quantities and costs to meet anticipated demand, and risk that new products may have quality or other defects in the early stages of introduction. Additionally, new products and solutions may not achieve the same profit margins as expected or as compared to our historic products and solutions. Conversely, marketMarket adoption of new products may impact the sales of other products and may expose on-hand inventories to future write-downs. Accordingly, we cannot fully predict the ultimate effect of new product introductions on our business. Furthermore, other market participants, such as well-established competitors, could develop alternative platforms for monetizing products, solutions, and services that result in a paradigm shift in our industry, particularly with respect to new and developing technologies.

We compete based on numerous factors, including product vitality and service levels, as well as features and benefits, brand name recognition, product quality, product and system design, energy efficiency, customer relationships, service capabilities, and price. In addition, we operate in a highly competitive environment that is influenced by a number of general business and economic factors, such as economic vitality, employment levels, credit availability, interest rates, trends in vacancy rates and rent values, energy costs, and commodity costs. Sales of lighting,our lighting controls,products and building technology solutionsservices depend significantly on the level of activity in new construction and renovation/retrofits. Declines in general economic activity, appropriations, and regulations, including tax and trade policy and other political uncertainties, may negatively impact new construction and renovation projects, or our ability to expand into new geographies, which in turn may impact demand for our product and service offerings.

We utilize a variety of raw materials and components in our production process including steel, aluminum, lamps, certain rare earth materials, microchips, light emitting diodes (“LED”), LED drivers, ballasts, wire, electronic components, power supplies, petroleum-based byproducts, natural gas, and copper. We also source certain finished goods externally. Supply chain disruptions for certain components, including microchips and electronics, have resulted in higher prices for significant commodities and materials, as well as increased warehousing, freight, and container costs, which have negatively impacted our business. Although these disruptions have subsided from their peaks, futureFuture disruptions in the supply chain and shortages could affect our ability to procure components for our products on a timely basis, or at all, or could require us to commit to increased purchases and provide longer lead times to secure critical components by entering into longer term guaranteed supply agreements. Alternatively, supply chain disruptions and shortages could require us to rely on relatively high-cost spot market purchases for certain materials or products.

In addition, there are new competitors, including small startup companies and global electronics, technology, and software companies, offering competing solutions, sometimes deploying different technologies. These competitors may vertically integrate and begin offering total solution packages that directly compete with our offerings. Certain global and more diversified electrical manufacturers as well as certain global technology and building solution providers may be able to obtain a competitive advantage, either through internal development or acquisitions, over us by offeringproviding broader andofferings morethat integratedutilize solutionsa utilizingcombination electrical,of lighting, controls, building automation solutions,products and/or data analytics,services, and small startup companies may offer more localized product sales and support services within individual regions.

Relationships with customers are directly impacted by our ability to deliver quality products and services. Although no individual customer exceeded 10% of net sales during fiscal 2025, 2024, or 2023, the loss of or a substantial decrease in the volume of purchases by certain larger customers could harm our business in a meaningful manner. We have relationships with channel partners such as electrical distributors, home improvement retailers, independent sales agencies, system integrators, and value-added resellers. While we maintain positive, and in many cases long-term, relationships with these channel partners, the sudden or unplanned loss of a number of these channel partners or a substantial decrease in the volume of purchases from a major channel partner or a group of channel partners could adversely affect our business.

Disruptions to our operations including, but not limited to, labor disputes, strikes, workplace violence, public health crises, pandemics and epidemics, climate change, brown outs and other power outages, earthquakes, fires, floods, extreme precipitation, explosions, terrorism, adverse weather conditions, water scarcity, cyber-attacks, civil or political disruptions, or other catastrophic events such as war, insurrection, or natural disasters, leading to production interruptions in our or one or more of our suppliers’ facilities could adversely affect us. Approximately 53%55% of our finished products are manufactured in Mexico, a country that periodically experiences heightened civil unrest or may experience trade disputes with the U.S., both of which could cause a disruption of the supply of products to or from these facilities. Further, because many of our customers are to varying degrees dependent on planned deliveries from our facilities, those customers that have to reschedule their own production, delay opening a facility, or incur other disruptions due to our missed deliveries as a result of these disruptions could pursue financial claims against us. We may incur costs to correct any of these problems in addition to facing claims from customers. Further, our reputation among actual and potential customers may be harmed and result in a loss of business. These types of events may negatively impact residential, commercial, and industrial spending, including construction and renovation spending as well as consumer spending on our products, in impacted regions or, depending on the severity, globally. As a result, any of such events could adversely impact us. While we have developed business continuity plans, including alternative capacity, to support responses to such events or disruptions and maintain insurance policies covering, among other things, physical damage and business interruptions, these policies may not cover all losses. We could incur uninsured losses and liabilities arising from such events, including damage to our reputation, loss of customers, and substantial losses in operational capacity.

Current global conflicts, such as the those between Russia and Ukraine as well as within the Middle East, have created substantial uncertainty in the global economy, including sanctions and penalties imposed on certain countries fromand persons by several governments. While we do not have operations in these locations and do not have significant direct exposure to customers and vendors in those countries, we are unable to predict the impact that these actions will have on the global economy or on our financial condition, results of operations, and cash flows.

Company operating systems, information systems, or devices have experienced, and may experience in the future, a failure,failure or a compromise of security, or a violation of data privacy laws or regulations, which could adversely impact our operations as well as the effectiveness of internal controls over operations and financial reporting.

We have also experienced compromises of our security, and could experience in the future, a compromise of our security for reasons including technical system flaws, the improper installation of an upgrade or update, the proper installation of an upgrade or update that has consequences unforeseen by us or the software provider, data input or record-keeping errors, or tampering or manipulation of our systems by employees or unauthorized third parties, such as through viruses, malware, or phishing. Information security risks also exist with respect to the use of portable electronic devices, such as laptops and smartphones, which are particularly vulnerable to loss and theft. We may also be subject to disruptions of systems arising from events that are wholly or partially beyond our control (for example, natural disasters, acts of terrorism, cyber-attacks, including but not limited to hacking, malware, ransomware attacks, denial-of-service attacks, social engineering, exploitation of internet-connected devises, and other attacks, epidemics, computer viruses, and electrical/telecommunications outages). While prior compromises of our security have not had, in the aggregate, a material impact on the Company’s operations and financial condition, the Company expects events of this nature to continue as cyber-attacks are becoming more sophisticated and frequent, and the techniques used in such attacks change rapidly. The Company monitors its data, information technology and personnel usage of Company systems to reduce these risks and continues to do so on an ongoing basis for any current or potential threats. Refer to Part I, Item 1C. Cybersecurity for further details.

We also provide and maintain technology to enable lighting controls andcontrols, building technology systems.systems, and audio-video platforms. In addition to the risks noted above, there are other risks associated with these customer offerings. For example, a customer may depend on integral information from, or functionality of, our technology to support that customer’s other systems, such that a failure of our technology could impact those systems, including by loss or destruction of data. Likewise, a customer’s failure to properly configure, update, segregate, or upgrade its own network and integrations with our technology areis outside of our control and could result in a failure in functionality or security of our technology.

We and certain of our third-party vendors may receive and store personal information in connection with human resources operations, customer offerings, and other aspects of the business. A material network breach in the security of these systems could include the theft of intellectual property, the unauthorized release, gathering, monitoring, misuse, loss, change, or destruction of our or our customers', suppliers', or other third-party's confidential, proprietary or personally identifyingidentifiable information, other disruptions of our customers' or other third parties' business operations. To the extent that any disruption or security breach results in a loss or damage to our data, or an inappropriate disclosure of information, it could cause significant damage to our reputation, affect relationships with our customers, employees, and others, or lead to claims against us. Such claims may result in the payment of fines, penalties, and costs,costs and ultimately harm our business. In addition, we may incur significant costs, regulatory fines, or penalties, or be required to take actions, to protect against damage caused by these disruptions or security breaches.

We are also subject to an increasing number of evolving and uncertain data privacy and security laws and regulations that impose requirements on us and our technology prior to certain use or transfer, storing, processing, disclosure, and protection of data and prior to sale or use of certain technologies. Failure to comply with such laws and regulations could result in the imposition of fines, penaltiespenalties, and other costs. New privacy and security laws are frequently enacted. Inconsistencies between the interpretation and the practical application of both existing and new laws are common across jurisdictions. Additionally, we routinely undertake contractual obligations to comply with all applicable laws, so a violation of a data privacy or security law could result in additional contractual liability.

Our success is also dependent upon our ability to attract, retain, and motivate a qualified and diverse workforce, and there can be no assurance that we will be able to do so, particularly during times of increased labor costs or labor shortages. We rely upon the knowledge and experience of employees involved in functions throughout the organization that require technical expertise and knowledge of the industry. We have experienced intense competition for qualified and capable personnel in key markets and with key skills, and we cannot provide assurance that we will be able to retain our key employees or that we will be successful in attracting, assimilating, and retaining personnel in the future. In addition, our growth may be constrained by resource limitations as competitors and customers compete for increasingly scarce human capital resources. The demand for skilled workers is currently high. We face an increasingly competitive labor market due in part to sustained labor shortages and are subject to inflationary pressures on employee wages, salaries, and benefitsbenefits, which have and may continue to increase labor costs and impact labor availability. Our competitors may be able to offer a work environment with higher compensation or more opportunities than we can offer. An inability to attract and retain a sufficient number of employees could adversely impact our ability to execute key operational functions.

Risks inherent in the sale of solutions and services include assuming greater responsibility for successfully delivering projects that meet a particular customer specification, including: defining and controlling contract scope and timing, efficiently executing projects, and managing the performance and quality of subcontractors and suppliers and our own systems. As we expand our service and solutions offerings, reliance on the technical infrastructure to provide services to customers will increase. If we fail to appropriately manage and secure the technical infrastructure required, customers could experience service outages or delays in the implementation of services. If we are unable to manage and mitigate these risks, we could incur liabilities and other losses.

We utilize strategic partners and third-party relationships in order to operate and grow our business. For instance, we utilize third parties for contract manufacturing of certain products, subcontract installationinstallation, and commissioning, as well as performfor performing certain selling, distribution, and administrative functions. We cannot control the actions or performance, including product quality, of these third parties and therefore, cannot be certain that we or our end-users will be satisfied. Any future actions of or any failure to act by any third party on which our business relies could cause us to incur losses or interruptions into our operations. In addition, we act as a general contractor in certain relationships with third parties, and as such are subject to risks applicable to general contractors.

We source certain components and approximately 17% of our finished goods from Asia,countries aoutside significantof portionthe United States, some of which are subject to import tariffs. These tariffs could increase in future periods resulting in higher costs and/or lower demand. We could be adversely affected to the extent we are unable to mitigate the impacts of the tariffs.

We are also subject to certain other laws and regulations affecting our international operations, including laws and regulations such as the United States, Mexico, Canada Free TradeStates-Mexico-Canada Agreement (“USMCA”), which, among other things, provide certain beneficial duties and tariffspreferential tariff treatment for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. A majoritylarge portion of our sales are subjectimpacted toby the USMCA. In addition, the USU.S. government has initiated or is considering imposing tariffs on certain foreign goods, including steelsteel, copper, and aluminum. RelatedIncreased and/or proposed tariffs by the United States have led, and may continue to thislead, action,to certainthe foreignimposition governments,of including China, have instituted or are considering imposingretaliatory tariffs onby certainChina U.S.and goods.other countries. It remains unclear what the U.S. Administration or foreign governments will or will not do with respect to tariffs, the USMCA, or other international trade agreements and policies. Trade wars or other governmental actions related to tariffs or international trade agreements or policies have the potential to adversely impact demand for our products, costs, customers, suppliers, and/or the U.S. economy or certain sectors therein, and, could adversely impact our business.

The evolution of our products, the complexity of our supply chain, and our reliance on third-party vendors such as customs brokers and freight vendors, which may not have effective processes and controls to enable us to fully and accurately comply with such requirements, could subject us to liabilities for past, present, or future periods. Such liabilities could adversely impact our business.

We may, from time to time, communicate certain initiatives, targets, and goals regarding environmental matters, diversity, responsible sourcing and social investments, and other ESG matters. These initiatives, targets, and goals could be difficult and expensive to implement, and we could be criticized for the accuracy, adequacy, or completeness of the disclosure thereof. Further, statements about our ESG initiatives, targets, and goals, and progress against those targets and goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, as well asand assumptions, estimatesestimates, and climate scenarios that are subject to change in the future. In addition, we could be criticized or subject to litigation for the scope or nature of such initiatives, targets, or goals, or for any revisions to such targets or goals. If our ESG-related data, processes, and reporting are incomplete or inaccurate, or if we fail, or are perceived to fail, to achieve progress with respect to our ESG targets or goals on a timely basis, or at all, our reputation, business, financial performance, and growth could be adversely affected.

We have begun to incorporate artificial intelligence (“AI”) capabilities in our product offerings and operations, and challenges with properly managing the use of artificial intelligenceAI and machine learning could result in reputational harm, competitive harm, and legal liability,liability and adversely affect our results of operations, financial condition, and/or cash flows.

We have begun incorporating artificial intelligence (“AI”) capabilities into certain product offerings as well as utilizing AI as part of our operational processes. These features may become more important over time. Our competitors or other third parties may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our results of operations. Additionally,Many ifknown and unknown risks related to AI exist. Currently recognized risks include issues related to accuracy, bias, toxicity, intellectual property infringement or misappropriation, data privacy and cybersecurity, and data provenance. If the content, analyses, or recommendations that AI applications assist in producing are or are alleged to be deficient, inaccurate, or biased, we could be subject to competitive risks, potential legal liability, and reputational harm, and our business, financial condition, and results of operations may be adversely affected. The use of AI capabilities may also result in cybersecurity incidents. Any such cybersecurity incidents related to our use of AI capabilities could adversely affect our business. Finally, multiple jurisdictions have either already put in place laws and regulations governing the use of AI, or are considering such laws and regulations, and additional constraints may result from industry efforts. Compliance with these laws, regulations, and industry frameworks may limit our ability to leverage AI or require us to substantially revise our approach to its use.

We are subject to various foreign and domestic federal, state, and local laws and regulations that include but are not limited to, the Clean Air Act and the Toxic Substances Control Act; the Clean Water Act; the Safe Harbor data privacy program between the U.S. and the European Union; the United States-Mexico-Canada-Free Trade Agreement (“USMCA”); regulations from the Occupational Safety and Health Administration agency; the European Union’s General Data Protection Regulation; California’s Consumer Privacy Act and Connected Device Privacy Act; the Civil Rights Act of 1964 and other federal and state labor and employment laws and regulations; the U.S. Foreign Corrupt Practices Act (the “FCPA”); and the U.K. Bribery Act. The laws and regulations impacting us impose increasingly complex, stringent, and costly compliance activities.

Concerns regarding climate change may also lead to significant legislative and regulatory responses, including efforts to limit greenhouse gas (“GHG”) emissions. The United States Environmental Protection Agency (“EPA”) has implemented regulations that require reporting of GHG emissions or that limit emissions of GHGs from certain mobile or stationary sources. In addition, the U.S. Congress and federal and state regulatory agencies have considered other legislation and regulatory proposals to reduce emissions of GHGs, and many states and other jurisdictions have already taken legal measures to reduce emissions of GHGs, primarily through the development of GHG inventories, GHG permitting, and/or regional GHG cap-and-trade programs. It is uncertain whether, when, and in what form a federal mandatory carbon dioxide emissions reduction program, or other state programs, may be adopted. Similarly, certain countries have adopted the Kyoto Protocol,Protocol and in February 2021, the U.S. rejoinedjoined the Paris Agreement.

Concerns regarding climate change may lead to significant legislative and regulatory responses, including efforts to limit GHG emissions. The EPA has implemented regulations that require reporting of GHG emissions or that limit emissions of GHGs from certain mobile or stationary sources. In addition, the U.S. Congress and federal and state regulatory agencies have considered other legislation and regulatory proposals to reduce emissions of GHGs, and many states have already taken legal measures to reduce emissions of GHGs, primarily through the development of GHG inventories, GHG permitting, and/or regional GHG cap-and-trade programs. It is uncertain whether, when, and in what form a federal mandatory carbon dioxide emissions reduction program, or other state programs, may be adopted. Similarly, certain countries have adopted the Kyoto Protocol,Protocol and in February 2021, the U.S. rejoinedjoined the Paris Accord. These and other existing or potential international initiatives and regulations could affect our international operations. As customers become increasingly concerned about the environmental impact of their purchases, if we fail to keep up with changing regulations or innovate or operate in ways that minimize the energy use of our products or operations, customers may choose more energy efficient or sustainable alternatives. These actions could also increase costs associated with our operations, including costs for raw materials and transportation. We may also be subject to consumer lawsuits or enforcement actions by governmental authorities if our ESG claims relating to product marketing are inaccurate. It is uncertain what laws will be enacted, and therefore we cannot predict the potential impact of such laws on our future financial condition, results of operations, and cash flows.

Our operations are subject to income tax, sales tax, value-added tax (“VAT”), excise tax, property tax, and other taxes and assessments at federal, state, local, and international levels. Our consolidated tax obligation is driven largely by our corporate structure as well as domestic and international intercompany arrangements. We operate in several jurisdictions, including but not limited to, the United States, Mexico, Canada, Europe, and Europe.Asia. Certain jurisdictions may aggressively interpret their laws, regulations, and policies in an effort to raise additional tax revenue, and international tax authorities may seek to assert extraterritorial taxing rights on our transactions or operations.

Significant changes in actual investment returns on defined benefit plan assets, discount rates, and other factors could adversely affect our comprehensive income and the amount of contributions we are required to make to the defined benefit plans in future periods. As our defined benefit plan assets and liabilities are marked-to-market on an annual basis, large non-cash gains or losses could be recorded in the fourth quarter of each fiscal year. In accordance with United States generally accepted accounting principles, the income or expense for the plans is calculated using actuarial valuations. These valuations reflect assumptions about financial markets and interest rates, which may change based on economic conditions. Funding requirements for the defined benefit plans are dependent upon, among other things, interest rates, underlying asset returns, and the impact of legislative or regulatory changes related to defined benefit funding obligations. Unfavorable changes in these factors could adversely affect our results. Additionally, a planned or actioned termination or settlement activities of any of our defined retirement benefit plans may not be approved timely, or at all, by the appropriate regulatory authorities; may result in additional non-cash charges within our results of operations as well as additional administrative costs; and/or may not yield the desired benefits.

Rising interest rates could have a negative effect on overall economic activity, and could impair the ability of real estate developers, property owners, contractors, and contractorssystem integrators to obtain reasonable costs of capital on borrowed funds, resulting in depressed levels of construction and renovation projects and a resulting decrease in demand for our products and services. Rising interest rates could also impair our customers’ ability to repay obligations to us. Additionally, rising interest rates may increase our cost of capital, which could have material adverse effects on our financial condition and cash flows.

The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness, and other key financial information of Acuity Brands, Inc. (referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries for the fiscal years ended August 31, 20242025 and 2023.2024. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report.

WeAcuity areInc. (referred to herein as “we,” “our,” “us,” the “Company,” or similar references) is a market-leading industrial technology company. Effective March 26, 2025, we changed our corporate name from Acuity Brands, Inc. to Acuity Inc. We use technology to solve problems in spacesspaces, light, and light.more things to come. Through our two business segments, Acuity Brands Lighting and Lighting Controls (“ABL”) and theAcuity Intelligent Spaces Group (“ISGAIS”), we design, manufacture, and bring to market products and services that make a valuable difference in people'speople’s lives. We achieve growth through the development of innovative new products and services, including lighting, lighting controls, building management solutions, and location-awarean applications.audio, video, and control platform. We focus on customer outcomes and drive growth and productivity to increase market share and deliver superior returns. We look to aggressively deploy capital to grow the business and to enter attractive new verticals.

We have numerous sources of capital, including cash on hand and cash flows generated from operations, as well as various sources of financing. Our ability to generate sufficient cash flows from operations or to access certain capital markets, including banks, is necessary to meet our capital allocation priorities, which are to invest in our current business for growth, to invest in mergers and acquisitions, to pay a dividend, and to make share repurchases. Sufficient cash flow generation is also critical to fund our operations in the short and long termsterm and to maintain compliance with covenants contained in our financing agreements.

Our significant contractual cash requirements as of August 31, 20242025 primarily include principal and interest on ouroutstanding unsecured notes,debt, accounts payable, accrued employee compensation, and operating lease liabilities.liabilities, Weand hadcertain nopurchase borrowingsobligations outstandingincurred underin ourthe creditordinary agreement ascourse of Augustbusiness 31,that 2024.are enforceable and legally binding. Further details on our borrowings and operating lease liabilities are outlined in the Debt and Lines of CreditCredit, Leases, and LeasesSubsequent Event footnotes of the Notes to Consolidated Financial Statements, respectively,Statements within this Annual Report on Form 10-K.

Additionally, we incur purchase obligations in the ordinary course of business that are enforceable and legally binding. Contractual purchase obligations subsequent to August 31, 20242025 include $284.4$323.3 million in fiscal 2025.2026. Contractual purchase obligations beyond fiscal 20252026 are not significant.

Our cash position at August 31, 20242025 was $845.8$422.5 million, ana increasedecrease of $447.9$423.3 million from August 31, 2023.2024. Cash generated from operating activities and cash on hand were used during the current year to partially fund the QSC, LLC (“QSC”) acquisition and our other capital allocation priorities as discussed below.

We generated $619.2$601.4 million of cash flows from operating activities during fiscal 20242025 compared with $578.1$619.2 million in the prior-year period, ana increasedecrease of $41.1$17.8 million. ThisCash increaseflows wasfrom dueoperations primarilydecreased toas payments for acquisition-related costs, higher netinterest, incomeand inincreased fiscalpurchases 2024,of inventory were partially offset by higherthe workingtiming capitalof investmentscollections tofrom fund profitable growth.customers.

See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements within this Annual Report on Form 10-K for discussion of the terms of our various financing arrangements, including the $500.0 million aggregate principal amount of 2.150% senior unsecured notes due December 15, 2030 (the “Unsecured Notes”) as well as, the terms of our $600.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”)., and the terms of our unsecured term loan facility (“Term Loan Facility”) due June 27, 2027.

At August 31, 2024,2025, our outstanding debt balance was $496.2$896.8 million, which consisted solely of our Unsecured Notes,Notes and borrowings on our Term Loan Facility, compared to our cash position of $845.8$422.5 million. We were in compliance with all covenants under our financing arrangements as of August 31, 2024.2025.

The Unsecured Notes were issued by Acuity Brands Lighting, Inc., a wholly-owned subsidiary of Acuity Brands, Inc. The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Brands, Inc. and ABL IP Holding LLC, a wholly-owned subsidiary of Acuity Brands, Inc. The following tables present summarized financial information for Acuity Brands, Inc., Acuity Brands Lighting, Inc., and ABL IP Holding LLC on a combined basis after the elimination of all intercompany balances and transactions between the combined group as well as any investments in non-guarantors as of the dates and during the period presented (in millions):

We invested $64.0$68.4 million and $66.7$64.0 million in property, plant, and equipment in fiscal 20242025 and 2023,2024, respectively. We invested primarily in new and enhanced information technology, equipment, tooling, machinery, and facility improvements in fiscal 2024.2025.

On JanuaryMay 19,1, 2024,2025, we acquired certain assets relatedof M3 Innovation, LLC, a sports lighting startup that uses innovative technology to Arize®lower horticulturethe overall cost of the installation and operation of sports lighting products from Current Lighting Solutions, LLC.solutions. The assets have been included in ABL's financial results since the date of acquisition and did not have a material impact to our consolidated financial condition, results of operations, or cash flows.

We paid dividends on our common stock of $20.6 million ($0.66 per share) in fiscal 2025 and $18.2 million ($0.58 per share) in fiscal 2024 and $16.8 million ($0.52 per share) in fiscal 2023.2024. All decisions regarding the declaration and payment of dividends are at the discretion of the Board of Directors (the “Board”) and are evaluated regularly inwith lightconsideration of our financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant.

During fiscal 2025, we repurchased approximately 0.4 million shares of our outstanding common stock for $117.1 million. Total cash outflows for share repurchases during fiscal 2025 were $118.5 million. During fiscal 2024, we repurchased 0.5 million shares of our outstanding common stock for $87.8 million. Total cash outflows for share repurchases during fiscal 2024 were $88.7 million. During fiscal 2023, we repurchased 1.6 million shares of our outstanding common stock for $269.3 million. Total cash outflows for share repurchases during fiscal 2023 were $266.6 million. We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash.

Gross profit for the year ended August 31, 20242025 increased $68.5$296.8 million, or 4.0%,16.7%, to $1.78$2.08 billion compared with $1.71$1.78 billion for the prior year. Gross profit margin increased 310 basis points to 46.4% for fiscal 2024 compared with 43.3% in the prior-year period. Our gross profit increased compared with the prior yearperiod due primarily to favorable material and import costs, which more than offset the lowerfall through of higher net salessales, andincluding higher production costs. Additionally in fiscal 2023, we recognized a $13.0 million charge resultingcontributions from the collectabilityQSC ofacquisition, aas supplierwell warrantyas obligationfavorable owedmaterials costs. These increases were partially offset by increased production costs, higher tariffs, and acquisition-date fair value adjustments to usQSC's for components we used in products manufactured and sold between 2017 and 2019.inventory.

Selling, distribution, and administrative (“SD&A”) expenses for the year ended August 31, 20242025 were $1.23$1.48 billion compared with $1.21$1.23 billion in the prior year, an increase of $15.5$256.5 million, or 1.3%.20.9%. The increase in SD&A expenses was due primarily to higher employee-related costs, partially offset by lower commissions and freightselling costs associated with higher sales and higher employee-related costs. The increase was also due to amounts related to the declineQSC inacquisition, netincluding sales.higher employee-related costs, higher amortization from acquired intangibles, and acquisition-related costs. Acquisition-related costs were recorded within unallocated corporate amounts.

We recognizedrecorded special charges oftotaling $26.9$29.7 million duringfor fiscalthe year 2023.ended August 31, 2025, which consisted primarily of impairments of long-lived assets as well as employee severance costs related to productivity initiatives. Please refer to the Special Charges footnote of the Notes to Consolidated Financial Statements within this Annual Report on Form 10-K for further details.

Operating profit for the year ended August 31, 20242025 was $553.3$563.9 million (14.4%13.0% of net sales) compared with $473.4$553.3 million (12.0%14.4% of net sales) for the prior fiscal year, an increase of $79.9$10.6 million, or 16.9%.1.9%. The increase in operating profit was due primarily to higher gross profit and nonrecurring fiscal 2023 special charges,profit, partially offset by higher SD&A expenses.expenses and nonrecurring fiscal 2025 special charges.

Interest Expense (Income) Expense,, net

We reported net interest expense of $22.0 million and net interest income of $4.5 million and net interest expense of $18.9 million for the years ended August 31, 20242025 and 2023,2024, respectively. The increase in net interest incomeexpense was due primarily to higher interest bearingincurred on our outstanding Term Loan Facility and lower interest-bearing cash and cash equivalent balances,balances higheras investinga ratesresult onof thoseour balances,purchase andof lower average short-term borrowings outstanding compared to the prior year.QSC.

Miscellaneous expense, net consists of non-service components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses, and non-service components of net periodic pension cost.losses.

The details of the Sunopticspension salesettlement charges are described in the AcquisitionsPension and DivestituresDefined Contribution Plans footnote of the Notes to Consolidated Financial Statements. The details of the equity investment impairment charge are included in the Fair Value Measurements footnote of the Notes to Consolidated Financial Statements.

Our effective income tax rate was 23.0%20.7% and 22.5%23.0% for the years ended August 31, 20242025 and 2023,2024, respectively. This reduction was due primarily to a one-time $8.2 million tax benefit related to the expiration of the statute in fiscal 2025 of limitations on tax reserves for uncertain tax positions. Further details regarding income taxes are included in the Income Taxes footnote of the Notes to Consolidated Financial Statements.

Net income for fiscal 2024 increased $76.6 million, or 22.1%, to $422.6 million from $346.0 million reported for the prior year. Diluted earnings per share for fiscal 20242025 was $13.44$12.53 compared with $10.76$13.44 for the prior-year period, ana increasedecrease of $2.68,$0.91, or 24.9%.6.8%. This increasedecrease reflects higherlower net income as well as lowerhigher outstanding diluted shares.

The following table sets forth information comparing the operating results of our segments, ABL and ISG,AIS, for the year ended August 31, 20242025 with the year ended August 31, 20232024 (in millions):

ABL net sales for the year ended August 31, 20242025 decreasedincreased 4.0%1.1% compared with the prior-year period due primarily to lowerhigher net sales acrossin allour channels,independent excludingand direct sales networks, partially offset by a decline in corporate accounts.accounts Netdue primarily to the timing of renovation activities for a large customer and a decline in the retail sales in fiscal 2023 benefited from working through an elevated backlog.channel.

ISGABL net sales for the year ended August 31, 2024 increased 15.5% compared with the prior-year period primarily driven by higher demand for Distech products and the acquisition of KE2 Therm. ISG operatinggross profit was $43.6$1.7 millionbillion (14.9%45.8% of ISGABL net sales) for the year ended August 31, 20242025 compared with $32.1$1.6 millionbillion (12.7%45.1% of ISGABL net sales) in the prior-yearprior period,year, an increase of $11.5$42.0 million. ThisThe increase in gross profit was due primarily to contributionsfall fromthrough of higher sales,net sales and favorable materials cost. These increases were partially offset by increasedhigher employee-related costsproduction and professionaltariff fees.costs.

We also maintain one-time or on-going marketing and trade-promotion programs with certain customers that require us to estimate and accrue the expected costs of such programs. Generally, these provisions are recorded as reductions of revenue and are estimated based on customer agreements, historical trends, expected demand, or specific notification of pending returns. Although historical experience has generally been within expectations, there can be no assurance that future rebates, sales incentives, product returns, discounts, and marketing and trade-promotion programs will not exceed historical amounts. A significant increase in these activities could have a material adverse impact on our operating results in the future.

An assessment of our goodwill and indefinite-lived intangible assets for impairment considers the use of significant judgments and estimates in accordance with U.S. GAAP including, but not limited to, economic, industry, and Company-specific qualitative factors, projected future net sales, operating results, and cash flows. Under a quantitative assessment, fair values for goodwill and indefinite-lived intangible assets are estimated using discounted future cash flows or another appropriate fair value method. We currently believe that the estimates used in the evaluation of goodwill and indefinite-lived intangibles are reasonable, including our calculations of fiscal 2024 trade name impairment charges described below.reasonable. However, future differences between actual and expected net sales, operating results, and cash flows and/or changes in the discount rates, or theoretical royalty rates for indefinite-lived intangible assets, used could require us to record additional non-cash impairment charges to earnings for the write-down in the value of such assets. Such charges could have a material adverse effect on our results of operations and financial position but not our cash flows from operations.

As of June 1, 2024,2025, the current fiscal year testing date, we performed a qualitative analysis to assess goodwill for impairment. Our qualitative analysis considered and assessed external factors for each reporting unit such as macroeconomic, industry, cost, and market conditions as well as Company-specific factors, including but not limited to, our actual and planned financial performance. Based on the results of our analysis, we determined there was not a more likely than not probability of impairment for each of our threefour reporting units. Thus, no quantitative test was required for our $1.1$1.5 billion of goodwill.

As of June 1, 2024,2025, the current fiscal year testing date, we held eight indefinite-lived intangible assets with an aggregate carrying value of $135.5$132.5 million. For fiscal 2024,2025, we performed a qualitative analysis to assess our indefinite-lived intangible assets for impairment. Our qualitative analysis considered and assessed external factors such as macroeconomic, industry, cost, and market conditions as well as asset-specific factors, such as each trade name's actual and planned financial performance. Based on the results of our analysis, we determined there was not a more likely than not probability of impairment for sevenall of the indefinite-lived intangible assets, and no quantitative test for these assets was required. We last performed a quantitative analysis in fiscal 2023 for these seventhe trade names and concluded that any reasonably likely change in the assumptions used in those analyses, including revenue growth rates, discount rates, long-term growth rates, or implied royalty rates would not result in an impairment.

The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness, and other key financial information of Acuity Inc. (referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries as of FebruaryMay 28,31, 2026 and for the three and sixnine months ended FebruaryMay 28,31, 2026 and FebruaryMay 28,31, 2025. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report. Also, please refer to Acuity Inc.'s Annual Report on Form 10-K for the fiscal year ended August 31, 2025, filed with the Securities and Exchange Commission (the “SEC”) on October 27, 2025 (“Form 10-K”).

Our significant contractual cash requirements primarily include principal and interest on outstanding debt, accounts payable, accrued employee compensation, operating lease liabilities, and certain purchase obligations incurred in the ordinary course of business that are enforceable and legally binding. Our obligations related to these items are described further within Management’s Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report filed on Form 10-K. Refer to Financing Arrangements below for a discussion of significant changes to our contractual obligations for the first sixnine months of fiscal 2026.

Our cash position at FebruaryMay 28,31, 2026 was $272.5$411.9 million, a decrease of $150.0$10.6 million from August 31, 2025. Cash generated from operating activities and cash on hand were used during the current fiscal year to voluntarily repay $200.0 million of borrowings on our Term Loan Facility (as defined below) as well as to fund our capital allocation priorities as discussed below.

We generated $229.9$520.2 million of cash flows from operating activities during the sixnine months ended FebruaryMay 28,31, 2026, compared to $191.6$398.9 million in the prior-year period, an increase of $38.3$121.3 million. Cash flows from operations increased due primarily to higher profit and lower income tax payments, partially offset by the timing of payments for inventory purchases. The decline in income tax payments is due primarily to the treatment for current and prior capitalized domestic research and development costs provided by recent tax law changes.payments.

See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for discussion of the terms of our various financing arrangements, including the 2.150% senior unsecured notes due December 15, 2030 (the “Unsecured Notes”), and the terms of our five-year unsecured revolving credit facilityagreement (“Revolving Credit FacilityAgreement”), andentered into during the termsperiod ofset ourto unsecuredexpire termMay loan8, facility (“Term Loan Facility”) due June 30, 2027.2031.

At FebruaryMay 28,31, 2026, our outstanding debt balance was $697.1$697.3 million, which consisted of our Unsecured Notes and borrowings on our Termrevolving Loancredit Facility,facility under the Credit Agreement, compared to our cash position of $272.5$411.9 million. We were in compliance with all covenants under our financing arrangements as of FebruaryMay 28,31, 2026.

During the first sixnine months of fiscal 2026, we voluntarily repaid $200.0 million of our outstanding obligation on our term loan facility (“Term Loan Facility”). Additionally, we repaid the remaining $200.0 million obligation on the Term Loan Facility obligation.with borrowings under the revolving credit facility under the Credit Agreement entered into on May 8, 2026. As of FebruaryMay 28,31, 2026, we had $200.0 million in remaining borrowings outstanding under revolving credit facility under the TermCredit Loan Facility.Agreement.

At FebruaryMay 28,31, 2026, we had additional borrowing capacity under the Credit Agreement of $593.4$592.8 million under the most restrictive covenant in effect at the time, which represents the full amount of borrowing capacity under the Revolving Credit FacilityAgreement of $600.0$800.0 million less outstanding borrowings of $200.0 million and letters of credit of $6.6$7.2 million issued under the Revolving Credit Facility,million, primarily for securing collateral requirements under our casualty insurance policies. As of FebruaryMay 28,31, 2026, our cash on hand combined with the additional borrowing capacity under the Revolvingnew Credit FacilityAgreement totaled $865.9$1.0 million.billion.

We invested $41.8$58.5 million and $28.6$43.6 million in property, plant, and equipment during the sixnine months ended FebruaryMay 28,31, 2026 and FebruaryMay 28,31, 2025, respectively. We invested primarily in new and enhanced equipment, information technology, equipment, tooling, and facility improvements in fiscal 2026.

We paid dividends on our common stock of $11.6$17.7 million ($0.37$0.57 per share) and $10.0$15.3 million ($0.32$0.49 per share) during the sixnine months ended FebruaryMay 28,31, 2026 and FebruaryMay 28,31, 2025, respectively. All decisions regarding the declaration and payment of dividends are at the discretion of the Board of Directors (the “Board”) and are evaluated regularly in light of our financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant.

During the first sixnine months of fiscal 2026 and 2025, we repurchased approximately 0.30.7 million shares and 0.10.3 million shares of our outstanding common stock for $105.5$232.7 million and $21.5$90.0 million, respectively.

Total cash outflows for share repurchases during the sixnine months ended FebruaryMay 28,31, 2026 and FebruaryMay 28,31, 2025 were $103.0$229.9 million and $22.6$91.3 million, respectively.

We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash. As of FebruaryMay 28,31, 2026, 3.02.6 million shares remained available within the program to repurchase.

SecondThird Quarter of Fiscal 2026 Compared with SecondThird Quarter of Fiscal 2025

The following table sets forth information comparing the components of net income for the three months ended FebruaryMay 28,31, 2026 and FebruaryMay 28,31, 2025 (in millions except per-share data):

Net sales for the secondthird quarter of fiscal 2026 increased $49.4$19.4 million, or 4.9%,1.6%, to $1.06$1.20 billion, compared with $1.01$1.18 billion in the prior-year period due primarily to an increase in net sales in our AIS segment, driven by the acquisition of QSC, as well as higher net sales of our Distech products. This increase was partially offset by a decrease in net sales in our ABL segment.

Gross profit for the secondthird quarter of fiscal 2026 was $520.4$606.4 million (49.3%50.6% of net sales), compared with $468.0$570.2 million (46.5%48.4% of net sales) for the prior-year period, an increase of $52.4$36.2 million, or 11.2%.6.3%. This increase was due primarily to contributions from the QSC acquisition as well as the fall through of higher net sales of our Distech products.and QSC products as well as acquisition date fair value adjustments to QSC's inventory in fiscal 2025 that did not recur in fiscal 2026. The improvement at AIS was partially offset by lower gross profit at ABL.

Selling, distribution, and administrative expenses (“SD&A”) expenses for the secondthird quarter of fiscal 2026 were $381.5$413.1 million, compared with $357.8$400.7 million in the prior-year period, an increase of $23.7$12.4 million, or 6.6%.3.1%. The increase in SD&A expenses was due primarily to amounts related to the QSC acquisition, including higher employee-related costs and higher amortization from acquired intangibles, partially offset by acquisition-related professional fees that did not recur in fiscal 2026.costs.

Operating profit for the secondthird quarter of fiscal 2026 was $133.0$193.3 million (12.6%16.1% of net sales), compared with $110.2$139.8 million (11.0%11.9% of net sales) for the prior-year period, an increase of $22.8$53.5 million, or 20.7%.38.3%. The increase in operating profit was due to higher gross profit,profit and a decrease in special charges, partially offset by higher SD&A expenses and the recognition of special charges.expenses.

We reported net interest expense of $7.0$6.1 million and $6.9$12.1 million for the secondthird quarter of fiscal 2026 and 2025, respectively. Net interest expense increaseddecreased year over year asprimarily lowerdue interest income was partially offset byto a decline in interest expense.expense These changes reflect both lower outstanding cash balances as well asfrom lower outstanding borrowings on our Term Loan during the secondthird quarter of fiscal 2026.

Miscellaneous expense, net consists of non-service components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses. We reported net miscellaneous expense of $3.1$2.0 million and $1.0$2.3 million for the secondthird quarter of fiscal 2026 and 2025, respectively.

Our effective income tax rate was 21.2%23.9% and 24.2%21.5% for the secondthird quarter of fiscal 2026 and 2025, respectively. This decreaseincrease primarily reflects favorable discrete items recognized in the secondthird quarter of fiscal 20262025 that weredid not presentrecur in the priorcurrent year.

Net income for the secondthird quarter of fiscal 2026 increased $19.3$42.6 million, or 24.9%,43.3%, to $96.8$141.0 million, from $77.5$98.4 million reported for the prior-year period. This increase was due primarily to higher operating profit and lower interest expense, partially offset by higher income tax expense associated with the increase in profit. Diluted earnings per share for the secondthird quarter of fiscal 2026 increased $0.64,$1.44, or 26.1%,46.2%, to $3.09$4.56 compared with diluted earnings per share of $2.45$3.12 for the prior-year period. This increase reflects higher net income as well as lower outstanding diluted shares.

The following table sets forth information comparing the operating results of our segments, ABL and AIS, for the three months ended FebruaryMay 28,31, 2026 and FebruaryMay 28,31, 2025 (in millions):

ABL net sales for the secondthird quarter of fiscal 2026 decreased 2.8%1.9% compared with the prior-year period. This decrease was due primarily to lower net sales within the direct sales network, due in part fromto lower project business that did not recur,business, partially offset by higher net sales within the corporate accounts channel.

ABL gross profit was $373.8$423.4 million (45.7%46.8% of ABL net sales) for the secondthird quarter of fiscal 2026, compared with $378.0$430.4 million (45.0%46.6% of ABL net sales) in the prior-year period, a decrease of $4.2$7.0 million. The decrease in gross profit was due primarily to the fall through of lower net sales andas well as higher tarifflabor, tariff, and overhead costs, partially offset by productlower material and productivityquality improvements.costs.

ABL operating profit was $125.1$160.6 million (15.3%17.7% of ABL net sales) for the secondthird quarter of fiscal 2026, compared with $130.3$134.0 million (15.5%14.5% of ABL net sales) in the prior-year period, aan decreaseincrease of $5.2$26.6 million. The decreaseincrease in operating profit was due primarily to special charges andin fiscal 2025, which did not recur in fiscal 2026, as well as lower grosssales-related profit,costs, partially offset by lower sales-relatedgross and employee costs.profit.

AIS net sales for the secondthird quarter of fiscal 2026 increased 44.7%14.9% compared with the prior-year period. The increase was due primarily to the acquisition of QSC and higher sales of Distech and QSC products.

AIS gross profit was $146.6$183.0 million (59.1%60.3% of AIS net sales) for the secondthird quarter of fiscal 2026, compared with $90.0$139.8 million (52.5%52.9% of AIS net sales) in the prior-year period, an increase of $56.6$43.2 million. The increase in gross profit was due primarily to the acquisition of QSC as well as the fall through of higher Distech and QSC net sales. The secondthird quarter of fiscal 2025 also included $10.4$19.2 million in preliminary pre-tax nonrecurring acquisition date fair value adjustments to inventory related to the acquisition of QSC, which did not recur in fiscal 2026.

AIS operating profit was $28.3$56.5 million (11.4%18.6% of AIS net sales) for the secondthird quarter of fiscal 2026, compared with $9.9$27.4 million (5.8%10.4% of AIS net sales) in the prior-year period, an increase of $18.4$29.1 million. This increase primarily reflects higherin operating profit fromwas thedue QSCprimarily acquisition.to AIS'shigher operatinggross resultsprofit, alsopartially includeoffset by higher employee-related costs as well as higher amortization from acquired intangibles as well as the impact of fair value adjustments to inventory that occurred in the prior year, both of which related to the QSC acquisition.intangibles.

First SixNine Months of Fiscal 2026 Compared with First SixNine Months of Fiscal 2025

The following table sets forth information comparing the components of net income for the sixnine months ended FebruaryMay 28,31, 2026 and FebruaryMay 28,31, 2025 (in millions except per share data):

Net sales for the sixnine months ended FebruaryMay 28,31, 2026 increased $241.5$260.9 million, or 12.3%,8.3%, to $2.20$3.40 billion compared with $1.96$3.14 billion in the prior-year due to higher sales in our AIS segment, partially offset by lower sales in our ABL segment. The increase in our AIS segment was driven by the acquisition of QSC, as well higher net sales of our Distech products.

Gross profit for the sixnine months ended FebruaryMay 28,31, 2026 increased $156.9$193.1 million, or 17.1%,13.0%, to $1.07$1.68 billion compared with $917.3$1.49 millionbillion in the prior-year period. This increase was due primarily to contributions from the QSC acquisition as well as the fall through of higher net sales of our Distech products. The improvement at AIS was partially offset by lower gross profit at ABL.

SD&A expenses for the sixnine months ended FebruaryMay 28,31, 2026 were $774.9$1.19 millionbillion compared with $673.8$1.07 millionbillion in the prior-year period, an increase of $101.1$113.5 million, or 15.0%.10.6%. The increase in SD&A expenses was due primarily to amounts related to the QSC acquisition, including higher employee-related costs and higher amortization from acquired intangibles, partially offset by acquisition-related professional fees that did not recur in fiscal 2026.

We recorded specialSpecial charges totalingfor $5.9the million during sixnine months ended FebruaryMay 28,31, 2026,2026 were $5.9 million, which consisted of employee severance costs related to productivity improvements in our ABL segment. These charges primarily related to labor cost reductions. Special charges for the nine months ended May 31, 2025 were $29.7 million, which consisted primarily of impairments of long lived assets as well as employee severance costs related to productivity initiatives. These amounts were recorded within our ABL segment.

Operating profit for the sixnine months ended FebruaryMay 28,31, 2026 was $293.4$486.7 million (13.3%14.3% of net sales) compared with $243.5$383.3 million (12.4%12.2% of net sales) for the prior-year period, an increase of $49.9$103.4 million, or 20.5%.27.0%. The increase in operating profit was due to higher gross profit,profit and lower special charges, partially offset by higher SD&A expenses and the recognition of special charges in the current period.expenses.

We reported net interest expense of $15.4$21.5 million and $2.9$15.0 million for the sixnine months ended FebruaryMay 28,31, 2026 and FebruaryMay 28,31, 2025, respectively. The increase in netNet interest expense wasincreased dueyear primarilyover toyear as lower interest-bearinginterest income was partially offset by a decline in interest expense. These changes reflect both lower outstanding cash and cash equivalent balances as awell resultas lower outstanding borrowings during the first nine months of ourfiscal purchase of QSC and higher interest incurred on our outstanding Term Loan Facility.2026.

We reported net miscellaneous expense of $2.5$4.5 million for the sixnine months ended FebruaryMay 28,31, 2026 and $3.5$5.8 million for the sixnine months ended FebruaryMay 28,31, 2025.

Our effective income tax rate was 21.1%22.2% and 22.3%22.0% for the sixnine months ended FebruaryMay 28,31, 2026 and FebruaryMay 28,31, 2025, respectively. This decrease primarily reflects discrete items recognized in the second quarter of fiscal 2026 that were not present in the prior year.

Net income for the first sixnine months of fiscal 2026 increased $33.1$75.7 million, or 18.0%,26.8%, to $217.3$358.3 million from $184.2$282.6 million reported for the prior-year period. This increase was due primarily to higher operating profit, partially offset by higher net interest expense.expense and income tax expense associated with the increase in profit. Diluted earnings per share for the sixnine months ended FebruaryMay 28,31, 2026 increased $1.11$2.53 to $6.91$11.45 compared with diluted earnings per share of $5.80$8.92 for the prior-year period. This increase reflects higher net income as well as lower outstanding diluted shares.

The following table sets forth information comparing the operating results of our segments, ABL and AIS, for the sixnine months ended FebruaryMay 28,31, 2026 and FebruaryMay 28,31, 2025 (in millions):

ABL net sales for the sixnine months ended FebruaryMay 28,31, 2026 decreased 0.8%1.2% compared with the prior-year periodperiod. This decrease was due primarily to lower net sales within the direct sales network, due in part to lower project business, partially offset by higher sales within the independent sales network and the corporate accounts channel.

ABL gross profit for the sixnine months ended FebruaryMay 28,31, 2026 was $774.4$1.20 millionbillion (45.2%45.8% of ABL net sales), compared with $784.4$1.21 millionbillion (45.4%45.8% of ABL net sales) in the prior-year period, a decrease of $10.0$17.0 million. The decrease in gross profit was due primarily to the fall through of lower net sales and higher tariff costs, partially offset by product and productivity improvements.

ABL operating profit for the sixnine months ended FebruaryMay 28,31, 2026 was $274.1$434.7 million (16.0%16.6% of ABL net sales), compared with $273.6$407.6 million (15.8%15.4% of ABL net sales) in the prior-year period, an increase of $0.5$27.1 million. The increase in operating profit was due primarily to lower sellingspecial charges and employeesales-related costs, which more than offset the decline in gross profit and the recognition of nonrecurring special charges.profit.

AIS net sales for the sixnine months ended FebruaryMay 28,31, 2026 increased 106.3%58.9% compared with the prior-year period. The increase in sales is attributed primarily to the acquisition of QSC as well as higher net sales of Distech products.

AIS gross profit for the sixnine months ended FebruaryMay 28,31, 2026 was $299.8$482.8 million (59.3%59.7% of AIS net sales), compared with $132.9$272.7 million (54.2%53.6% of AIS net sales) in the prior-year period, an increase of $166.9$210.1 million. The increase in gross profit was due primarily to the acquisition of QSC as well as the fall through of higher Distech net sales. The secondnine quartermonths ofended fiscalMay 202531, 2025, also included $10.4$19.2 million in preliminary pre-tax nonrecurring acquisition date fair value adjustments to inventory related to the acquisition of QSC, which did not recur in fiscal 2026.

AIS operating profit for the sixnine months ended FebruaryMay 28,31, 2026 was $65.3$121.8 million (12.9%15.1% of AIS net sales), compared with $20.7$48.1 million (8.4%9.4% of AIS net sales) in the prior-year period, an increase of $44.6$73.7 million. This increase primarily reflects higher operating profit from the QSC acquisition.acquisition as well as increased profit from Distech's higher net sales. AIS's operating results also include higher amortization from acquired intangibles as well as the impact of fair value adjustments to inventory that occurred in the prior year, both of which related to the QSC acquisition.