AYI
#<UNK>, that goes back to <UNK>'s question earlier.
It's really our tiered solution strategy approach and as we get a better base of data and our ability to more effectively collect that information, particularly as we think about these holistic solutions and how they come together; again, building owners will care less and less about the pieces and parts.
What they will care about is do all of these things work together, are they smart and are they simple for me to use and can I use them in a way that helps me optimize whatever I'm doing.
If it's a retailer, can I optimize my associate productivity, or enhance the retail environment for consumers.
If I'm a university, can I make my university safer and so on and so forth.
I believe that we will be able to give better information around our tiered solution strategy as we go forward.
It's just that we are in our infancy.
We're trying to slice and dice the historical data so that we can have a base with which to compare.
We're working hard to create the portfolios internally that will then allow us to sell those as holistic solutions and we'll be able to record those.
It's rough right now.
It's really a guesstimate, but when we look at that, when we look at the data that we have, it tells a compelling story and when we think about the hit rate that we have, when we tell folks who are interested in these holistic solutions, their interest and what they are focusing on and the opportunity to look at it as a total cost of ownership is very robust.
And our hypothesis is that we will see more improved margin profile from those kinds of things, but it's really early in the game.
Favorable trends.
But we'll be able to do that probably down the road, certainly not over the next couple of quarters though.
Yes.
<UNK>, I'll turn that over to you.
Our growth rate is above the market growth rates that we are experiencing.
As you all know, lighting lags.
So while leading indicators are ---+ such as Architectural Billing Index, vacancy ---+.
Correct.
And we also have the added benefit of renovation activity.
Again, it's a huge install base that's out there and it's been converting very slowly.
As Acuity becomes better and better at fishing in that pond, we think it allows us to (technical difficulty) components that will allow us to outgrow the overall growth rate of the market.
I think that the mid to upper single digit range for lighting over the last quarter ---+ it is probably closer to upper ---+ is probably a fair reflection of what the marketplace is.
And again, we're collecting data, <UNK>, as you are, from various sources to help us triangulate and compute that, and yet our growth rate continues to be above that.
I would add that, <UNK>, if you look at our growth rate, clearly, we are seeing the secular benefit of the move to LED.
LEDs tend to sell at a higher price point per fixture than the traditional fixture, so that's helping the industry and us from a top-line growth.
That secular trend, as <UNK> commented, the renovation retrofit over the last several years just continues to accelerate.
Obviously, again the LED technology being a catalyst for that, but there's the desire to be green, desire to be sustainable, the energy savings regulations.
We've talked about California Title 24, other factors that are driving that and then as you mentioned the cyclical ---+ I would say the minority of our growth now would be the cyclical recovery.
While we're seeing a recovery in nonresidential construction and maybe a bit more in residential construction, I would say that's a minority of our growth versus the secular trend of moving to LED and this renovation retrofit opportunity of converting this very large install base.
We estimate the install base at over $300 billion indoor and then you add to that all of the outdoor and all we have to do is drive around and look up and you recognize how few of the outdoor lights have converted to LED and similar when you look around in buildings.
So huge, huge opportunity and we're beginning to see that conversion rate pick up and that secular trend I think is the bigger driver of our growth for the industry and certainly for us, but we are seeing the cyclical recovery and as we talked about, it is good to hear what you are seeing in other industries, that will continue.
Sure, I think over the last year, maybe 18 months, our view was that our business was probably 50-50 new construction/renovation.
Our expectation is that, as new construction comes back, that mix will shift a little bit towards new construction.
But to be clear, we have become very skilled at fishing in that renovation pond, so we would expect to continue to see that grow as well.
It's just that, as <UNK> pointed out, some of the new construction activity may move, may shift that mix just a little bit.
So does it become 60/40.
It wouldn't surprise me, but we are going after it all in that regard.
And then remind me, the second question was.
Sure.
And it may be different for Acuity than others because again of the renovation ---+ the relationship that we have with our key electrical distributors around renovation.
So that number is probably a two thirds/one third number.
We're just kind of guessing here a little bit, 70/30, something like that new versus stock and flow, or I should say a more specification project business versus stock and flow.
That would be my guess and truly it's a guess.
Yes.
Understand that, in the SGA area, we are a pay-for-performance environment and so the performance that the Company is performing to today is really upper quartile performance and so the incentive compensation is upper quartile.
This quarter, compared to the year-ago quarter, we probably booked close to 3 times the amount of accrual for incentive compensation.
When I think about the fourth quarter last year, we had a very solid fourth quarter and so the accrual was higher than it had been in the typical ---+ or the previous quarters ---+ because the performance was more consistent with a low accrual number.
Anyway, we earned the bonus last year, accrued it in the fourth quarter.
My guess is is that this year we'll see some of that leverage coming forward.
In other words, we won't be booking ---+ we will probably be booking a consistent number for incentive comp, but on a higher level of revenues.
The other thing that I would point out is we continue to reinvest back in the business.
As we've talked about the tiered solutions approach, the investments that we're making to really drive a capability in tier 3 and tier 4 takes skill sets and resources that we haven't had in the past and so we are investing there.
We took a streamlining action in the first quarter of this year and we've been adding back different skill sets to help us drive that.
I think what's particularly important is the variable contribution margin that we earned this quarter.
It was above what we would like to provide, if you will, sort of a directional capability.
Variable contribution in the upper 20%s is a number that we are comfortable with, but yet we continue to outperform that, or have outperformed that and our objective is to always do that.
So you will see leverage in the SDA area as we go forward.
Certainly, in the 2016, 2017 period we would expect to see that.
But be clear.
We are investing in our business.
We are a human capital-intensive business primarily.
This year, our CapEx is up a little bit more than what it has been by historical trends and that's primarily because we are running out of space and we've done some things to expand our technical capabilities from a physical plant perspective.
But you'll continue to see us leverage the SDA as we go forward.
Well, the answer is we are aggressively each quarter looking to bring every nickel we can of incremental profitability to the bottom line, but we're doing that while appropriately balancing reinvestment back into the business.
And so while we are very proud of the incremental margins that we have generated this year, we still expect to not only drive improvements there, but we do expect to invest back into the business.
As we go forward, when we think about future years and the out years, as we drive these tiered solutions approach more into tier 3 and to tier 4, we would expect our variable contribution margins to improve because the overall margins in those tiers ---+ our expectation is that they will be higher.
Early indications are suggesting that to be true, but again we are very early in this game.
That's a great question.
Our revenue mix and our growth was reasonably broad-based.
Some of the geographies where we may have not ---+ where we were below our average I don't believe was a difference between LED and non-LED.
It was just that some of those markets from what we can tell were just a little bit slower.
When you think about the two coasts, it's clear that the adoption of LED is moving forward nicely, but we have had great successes in Mid-America, vis-a-vis LED.
If you were to talk to various distributors in those markets, I think that they would tell you that their LED-based luminaire business is growing and growing nicely.
So I don't perceive it to be a huge difference.
I do think that some of the energy-savings codes that some states have promulgated facilitate a more rapid, if you will, renovation opportunity and typically if folks are looking at alternatives, they are going with LED.
The amount is very de minimus.
You will see in the 10-Q that the amount of shipments related to this is less than $300,000, so a very immaterial amount.
So it should not have a material impact on the revenue growth going forward.
Thank you, everyone, for your time this morning.
We strongly believe we are focusing on the right objectives, deploying the proper strategies and driving the organization to succeed in critical areas that will, over the longer term, deliver strong returns to our key stakeholders.
Our future is very bright.
Thank you for your support.
