WESCO International, Inc. (WCC) Earnings Call Transcript & Summary

All right. Up next, we have WESCO, John Engel and Dave Schulz. [Operator Instructions] But first, I think John is going to walk through a bit of a presentation, and then we'll go right into Q&A. John, Dave, thanks for joining us, and off to you.

Well, thank you, Steve. It's great to be here. And WESCO is a $16 billion global distributor and supply chain solutions provider, and that includes the acquisition of Anixter completed last summer. Shown on this page is our mission and vision. Our purpose is to build, connect, power and protect the world. Our 18,000 employees live that mission every day as they service more than 125,000 customers in over 50 countries around the world, and we have over 800 branch locations. Through a differentiated and compelling value proposition for our customers and suppliers, we're positioning WESCO to be the best tech-enabled supply chain solutions provider in the world. We had great opportunities toward that end. Since acquiring Anixter's $8 billion global business in June of last year, we made a significant step in consolidating a highly fragmented industry. We're now the industry leader. And through the benefits of the integration, we expect to realize incremental growth and efficiency opportunities from the inherent synergies, the economies of scale, access to top talent, and a much stronger portfolio of product, services and solutions that we deliver to a broader geographic reach and a much larger and more diverse customer base. In just 6 months, we already are beginning to see the value that comes from integrating these 2 companies into something that is far more powerful. In addition to the benefits of 1 plus 1 equals 3, we're well positioned to take advantage of emerging secular growth trends and deliver above-market returns. Importantly, we're executing a digital transformation of our business, and this will become our primary competitive advantage and differentiator in the years ahead. And finally, our business model is unique in its ability to generate strong free cash flow through all phases of the economic cycle. And that enables us to strike the right investment balance in meeting both short- and long-term reach. In the near term, our top priority is we tame the acquisition debt in order to bring us back within our stated net leverage target range of 2.0 to 3.5x total debt to EBITDA. So for those of you new to our story, let me spend a couple of minutes giving you some insight into the compelling and transformational combination of WESCO and Anixter. This transaction marked a notable departure of WESCO's historical bolt-on approach to M&A and have brought together 2 industry leaders, and that's what's different. We believe the combination provides the best path forward for increased value. We are now the industry leader in electrical, communications and utility distribution and supply chain solution. Our differentiated scale and capabilities offer unrivaled value for our customers and unique partnership value for our suppliers. The diversity of our portfolio supports strong product and services cross-selling opportunities for sales growth while also delivering significant cost synergies, which will drive operating efficiencies for the newly combined company. We're targeting over $250 million of permanent cost savings by mid '23 through initiatives that are split roughly 80-20 between SG&A and cost of goods sold. The savings are coming from a broad series of categories, reducing staffing, reducing professional fees, consolidating facilities, improving and optimizing our distribution network, capturing operating efficiencies using lean, consolidating our supply base, negotiating better terms with our suppliers, sharing and incorporating best practices. We've established an integration management office as our central point of oversight and management for the process, and this enables our sales and operations associates to focus on ensuring business continuity. And they've done an exceptional job to date. Our customer retention remains strong. We've not lost a customer. Our new business pipeline is growing, and we've gained share in our served markets this year. We remain confident on delivering our synergy targets. And as always, we're stretching ourselves and driving for upside. So in addition to the cost synergies, we've got great opportunity to generate incremental sales growth across our 3 businesses. The combined portfolio creates an efficient single source or one-stop shop for our customers' needs. WESCO's capabilities in industrial, construction and utility matched with Anixter's expertise in communication, security and wire and cable create an industry-leading lineup for our customers. As we bring together these complementary products, services and technologies, there are significant cross-selling opportunities that enable us to offer more solutions for more customers and more locations around the world. And that strengthens our overall value proposition with both customers and suppliers. Since closing the transaction in June of last year, we found the business combination to be even more complementary than we originally expected, and that gives us a more balanced portfolio with greater upside potential. The magnified strength we derive from bringing these 2 industry powerhouses together is really extraordinary. Between June and December of 2020, we realized $39 million of cost synergies. The majority came from overhead -- corporate overhead actions. From rapidly closing the merger in a little more than 5 months to standing up a world-class integration management office preclose, we've moved with both speed and agility. We selected and recruited a new senior management team, created 3 new business segments. I'll walk you through those in a moment. We launched cross-selling and gross margin improvement programs, and these are going to be critical to our long-term sustainable earnings power. The acquisition of Anixter has proven to be value-creating across all our key operating metrics. In addition to the sales synergies and improving economic growth drivers, we're uniquely well positioned to capitalize on secular trends that accelerate our future growth. Outlined on this page are 12 areas of growth that our products, services and overall capabilities align well with. It's tough to precisely quantify the opportunity of each one of these. However, the bottom line is there's no shortage of prospects for strong future growth. So let's go through a few examples by business. EES is our largest business. It's 40% of the combined sales, and it's split into Industrial and MRO, OEM and Construction end markets. And it's roughly equally split across the 3. The business generates about 65% of its sales in the U.S., 20%, a little over that, in Canada and the rest of the world makes up the balance. As you can see, the growth drivers for this business are broad-based and are outlined on this page. EES is targeting growth driven by increasing electrification of infrastructure and industrial transportation and energy sectors. Importantly, we're working with our customers and supplier partners to reduce greenhouse gas emissions and improve sustainability of the overall supply chain. Finally, the overall trend of supply chain consolidation and outsourcing is increasing, including relocation back to North America. And our customers want to reduce their supply chain risk. Our customers want to do business with a smaller number of larger supplier partners, and that bodes well for WESCO. In our Communications & Security Solutions business, we call it CSS, the growth opportunities are even larger and more expansive. CSS makes up about 1/3 of our company's total sales. The capabilities of this business were a competitive advantage for Anixter prior to the acquisition. They had a global leadership position that they had established over a number of years. With very low customer overlap, this brings exciting customer expansion and opportunities to the combined company. End markets and CSS include network infrastructure, connectivity and security solutions. About 70% of the sales come from the U.S., roughly 10% from Canada and 20% from the rest of the world. CSS is using our global reach and technical expertise to capitalize on strong demand for increased bandwidth, and that's due to higher voice, data, video and mobile usage as well as greater connectivity needs for both work, home and school applications. These demand drivers are driving secular growth in data centers, mobility, secured networks, remote connectivity, audio/video applications, and importantly, 5G build-outs, which are increased. Our third business segment is our final segment combines -- called UBS, combines a secular growth of the utility sector with rapid growth in broadband. It makes up about 25% of our combined sales. Utility market has been a source of consistent growth for both WESCO and Anixter, including 9 consecutive years of organic growth for the legacy WESCO business. By combining our businesses, we've created a powerful leader in the utility space across 3 major customer segments: investor-owned utilities, public power and utility contracts. As it relates to emerging trends, Utility's dependability is essential, and it's driving increasing investment in grid hardening and reliability as well as renewables and green energy investments. For broadband, rural areas in the U.S. and Canada still suffer from limited availability. Providing reliable high-speed Internet to remote parts of these rural areas has really been a challenge for years. The COVID-19 pandemic has created a renewed sense of urgency to address this need. This presents an excellent opportunity for WESCO to participate in the 5G build-out as we see both government investment and new technologies being put in place. So that talks about our 3 businesses, and all 3 of our business units are benefiting from the combined product services and capabilities we now have, in addition to the variety of robust secular growth trends, all of which support long-term sustainable earnings growth. So that earnings growth, with effective and flexible working capital management and moderate capital investment needs, creates a resilient cash flow model for WESCO. So as you can see on this page, we've consistently generated strong free cash flow through the economic cycle. And in times of macroeconomic pressure, we're able to flex our cash management strategy to protect our business and continue supporting our customers. Last year as the global pandemic adversely impacted global demand, we delivered free cash flow of nearly $600 million, I'll repeat $600 million, by quickly and effectively managing our capital spending and working capital. That total represents a full year of WESCO and 6 months of Anixter. In 2021, we're targeting free cash flow of approximately 100% of adjusted net income. That's even with increased investments in digital and in support of our expected growth as our end markets recover. We expect to complete our integration program for the aggressive transformational combination of Anixter and WESCO by midyear 2023. At that point, we're targeting free cash flow of $600 million from the combined company's earnings power and effective working capital management. But until then, our capital allocation priority is to bring our leverage ratio back within our targeted range, as I said before, of 2.0 to 3.5x. Our current financial leverage ratio was -- is really being driven by the funding requirements for the Anixter acquisition. As you can see on this page, we have a proven ability to quickly delever postacquisition. After our 2012 purchase of EECOL, a $900 million Canadian electrical distributor, we quickly brought our debt back comfortably within our target range within 1 year. The acquisition of Anixter's $8 billion business, the debt raise, combined with our -- with the COVID-related earnings pressure, has driven our leverage ratio to 5.7x net debt to adjusted EBITDA. With that said, in just 6 months since the acquisition closed, we've already reduced that level by nearly half a turn. We expect to be back within our target range through a combination of market growth, sales synergies, cost synergies and debt repayment by mid-2023. As I mentioned before, this is a top priority for us. Getting back below 3.5x leverage ratio gives us the flexibility to continue to invest in our business for future growth and create increased value for our shareholders. So before opening it up to Q&A, I want to emphasize that the success of our business is not just being driven by investments in growth opportunities but also in sustainable operating practices. Across all 3 business units, we're driving success with a commitment to the world around us. We are acutely aware of that responsibility and the opportunity we have to use our scale and resources to drive a better, more sustainable future for all of our stakeholders. We take that very serious. I encourage you to review the various initiatives we've undertaken, as outlined in our sustainability report, which is posted on our website. Please note that we'll be updating this report later this year. So with that, again, a pleasure to be with you today, and let's open it up to questions. Steve?

Great. Thanks, John. When you think about kind of the longer-term sales CAGR that you aspire to post-Anixter, how do we think about that versus the 1% to 2% share gain target? And then what are the kind of key drivers of that improvement?

So you may recall that pre-Anixter, WESCO, we always had a target of outperforming the market by 1 to 2 percentage points. With Anixter, this transformational combination, we now expect that outperformance to be an additional 1% influence. And it's going to really be driven by cross-selling opportunities of both companies' complementary portfolios. We also have an increased exposure to higher-growth markets, as I've mentioned, we've mix shifted the company up. And we think we have an ideal position to benefit from the secular growth trends that I outlined. Electrification, the increasing bandwidth needs, remote connectivity, utility grid hardening as well as we're hearing from our customers about -- they're talking about near-shoring and reshoring parts of their company's supply chain.

When you think about the competitive dynamics of the industry, do you see any changes here when you're looking at competition for new projects or MRO?

Good question. I would say that the industry is still very fragmented. With that said, we're now the industry leader in North America and have a global leadership position in communications and security. We're a little more 8 months into the integration at this point, having closed last June. We've not seen any changes in the competitive landscape. To date, we've retained all our customers, and we think we're providing a lot more value to customers and suppliers through the strength of our portfolio and complete solutions. So we clearly have mix shifted up, Steve. We've got the leadership position. With that said, the market is still very fragmented, and we haven't lost any customers. And so we feel very good about the move. But we've not seen -- the core to the question, we're not seeing any change in the core competitive dynamic.

Kind of a related question coming from the client base. Given all the cost synergies in this deal, why haven't we seen more large-scale cost-synergy-driven M&A in the distribution industry? Why is this one kind of stand-out? Why is this one unique?

Well, there are not a lot of large publicly traded companies. So I think that's really the issue. When you look at it in just core electrical distribution, you still have thousands and thousands of competitors in the U.S. So there has been a notable consolidation that's occurred over the last several decades. The overwhelming majority of these have been private companies. It's only with a handful of the bigger companies, and I've made -- I had some comments about this at our Annual Investor Day 2 years ago in 2019 where I made some strong statements that suppliers were consolidating at a faster rate than distribution. It goes back a number of years, Eaton buying Cooper, ABB buying GE, et cetera, right? So -- and I felt distribution had to scale up quicker. There are only a handful of bigs. And I said the bigs got to come together, and I'm happy to say we're able to help lead that with the Anixter deal.

Right. Have you seen any attrition as a result of this deal? Any unwanted attrition on the employee base? There's always a little bit of cultural disruption when you go through things like this. And anything you've seen there?

No. We've -- knock on wood, we've been super pleased with the results to date. I mentioned earlier, no customer attrition and no attrition of our top sales talent. I think what they're realizing is, and it's something that I realized, I knew Anixter pretty well. The portfolios are more complementary than we thought. So now what we've given the -- and we've got aggressive cross-training -- or cross-selling programs that we're now training our sales force to go execute. So they've got the opportunity to sell a bigger portfolio of products and services. And for them, they're a commission sales force, that gives them the opportunity with, we think, the industry-leading value prop to make more money. So far, so good. Another thing I'll comment on, Steve, the cultural match was the other surprise. It was exceptionally better than I would have realized. And we both were very focused on the customer and bringing complete solution. And so that, that really has been, I think, one of the key drivers of our succession in these first 8 months postclose, that we're rallying around just the core culture of serving the customer. And now we've got this bigger portfolio, and we're trying to bring up to bear on the company's operations.

Right. How big do you think -- can you quantify that upside from cross-selling, what the -- maybe like, I don't know, like an example, addressable market?

Yes, of course. So we've given a framework on the 3-year financials. Dave, why don't you kind of take Steve and the group through how we're thinking about each of the elements?

Yes, certainly. So as we think about the cross-sell opportunity over the first 3 years postclose, that's where we're expecting to get that 1% of incremental growth above the market primarily from the cross-sell. And we're seeing it across our portfolio with all 3 SBUs are seeing the opportunity to really expand that portfolio of products and services. I'll give you a couple of examples. We've had some legacy Anixter customers that have been able to apply the WESCO lighting package that we traditionally offer to our customers. Anixter had a best-in-class wire and cable capability that, quite frankly, we did not have within the legacy WESCO operation. So being able to cross-sell that wire and cable capability against the traditional electrical subcomponents that we're able to offer with our legacy WESCO business, that's where we're starting to see some of these real opportunities come together, and that's where we're confident that we're going to get that incremental point of growth through the third year of the deal.

Right, right. That makes a lot of sense. Opportunity around SG&A from synergies is pretty clear. Are there any opportunities on gross margin?

We do see substantial opportunities on the gross margin line as well. And one thing I'd highlight, and I'm sure many of the investors saw this over the past couple of years, Anixter had started a very successful margin improvement program. And that's something that we're very excited about reapplying across the entire enterprise. When you take a look at some of the legacy Anixter results across the industry, you saw gross margins being under pressure, contracting over the last, call it, 2 years. Anixter was actually seeing growth in their gross margin pre-acquisition. And again, that's something that we're really excited about expanding across the entire company. So we are deploying that. And there's a couple of different things that we're really excited about. First, the Anixter program really looks at the gross margin across multiple angles, and it begins with ensuring that our sales force has the right tools and analytics available to them. Second, it's really about the culture. John mentioned that the culture is very closely aligned. That was one of the big surprises -- pleasant surprises that we saw as we brought the 2 companies together. We're leveraging that culture around gross margin expansion. That includes with our training and our change management. And third, it's really the focus on selling the value. So one of the things that we had highlighted is of the $250 million of cost synergies, we do expect roughly 20% will impact the gross margin line.

Got it. Got it. When you look at EBITDA pro forma, you're looking at, like, I think, 5.3% in '20. I'm looking back before the deal, the pro forma was about 5.2%, but it was as high as 6.5%. When you add in the synergies, you're getting to kind of, I think, like 6.7%, high 6s. Is that kind of the right way to think about the entitlement for the company now that you're kind of surpassing prior peak levels, which were at, when we put it together, it's kind of 2014-ish?

Yes.

Is that the right kind of entitlement to think about?

I'll start. Dave, you may want to add. The short answer is yes. I mean I do want to make a comment. Back in 2014, the oil and gas market has gone through substantial growth. Margins were kind of temporarily higher. Also, the Canadian U.S. dollar exchange rate was at parity. So I think there were some unique drivers back in '14. But with that said, mid -- 6.5% plus is clearly an achievable goal. In the short run, we're targeting at least that level of higher margins over the longer term. What's important to understand is we think that we've mix shifted the company up into higher-margin businesses fundamentally.

Right and I mean, that makes sense.

And I think instead, we're reengineering the cost structure of the combined entity and its distribution economics. Scale matters and so we've clearly scaled up this combined enterprise.

Right. When it comes to leverage, the stock has gone up. Admittedly, it was kind of at a low level like everything was. Would you consider an equity raise as far as taking that debt load down, kind of mitigating the risk there at some point? I mean one of our companies just did an equity raise to kind of position itself for the future. Any notion there?

At this point, we're not considering that, not at this time, Steve. I think we have great confidence in the inherently strong free cash flow generation of the combined business. If you were to look at both -- I mean Anixter was publicly traded. If you look at Anixter and WESCO independently across the economic cycle, both companies are strong free cash flow generators. Together, we're driving some incremental synergies as well with working capital improvement. So we're highly confident in the underlying business model. And our -- as I mentioned a few times in -- with the comments on the page I just reviewed, we're very focused on paying down the debt. So that's us in the short run. We feel good about the initial progress. I mean we get nearly half a turn out in the first 6 months postclosing. It's a good sign.

What would dictate moving to kind of the lower and the higher end of the range of your leverage, the 2 to 3.5x? I guess the question is would there -- are you comfortable at running at 3.5x, aim to do another deal? Or is it -- is kind of the bandwidth of the organization kind of busy right now and stretched with this integration?

There's a couple of questions in there. Excellent question. I would say we are very focused on integrating these 2 world-class companies into the preeminent leadership position in the industry. It is a -- we -- across the board, we are putting this -- picking the best of each company, creating the best of both. It's a 3-year aggressive integration program. So I would say our management bandwidth and focus is clearly on that. We're using our strong free cash flow to pay down our debt. Now in terms of midterm to longer term as we delever, WESCO has only been below a 2.0x leverage ratio 2 individual quarters since we went public in '99. It's an interesting step. I've been with the company since 2004, only 1 quarter, we were below 2.0x, and we bought EECOL the next quarter, which was our biggest acquisition prior to Anixter. It's $1 billion acquisition. So I think we believe and we're very comfortable with the strong free cash flow. We're operating with financial leverage. I think it could result in better returns for our shareholders. I think as we move down to the 3.5x range and get it inside that, we're going to continue to be acquisitive. We have been. We will be. But in the short run, complete myopic focus on the integration program and trim that debt.

Got it. And it was a question from a client. So I'm not going to take credit for that, for the excellent question. Can you give an update on trends kind of as you seen them as of today, as of this morning, as is on hand?

Well, we're not -- we've made -- we did reinstate guidance for 2021. We did it as part of our fourth quarter earnings call. We had full guidance last year like most companies did. But we reinstated with an annual guidance. We're giving some kind of commentary around quarters, but we don't have quarterly guidance. So we're not going to be giving monthly updates, but I do -- I will share this that our earnings call was literally a month ago. I think we're off to a terrific start. We exited last year with a record fourth quarter backlog. The leading market indicators have all been positive. Some have been more positive than others, but generally positive. There's increasing momentum in the market. We're seeing that in Industrial. Construction, again, given our strong backlog and given our strong book-to-bill ratio, we said it was above a 1.0 at our earnings call a month ago. We're more nonresi-construction-driven. We're seeing -- we've -- we haven't had any project cancellations, some project pushouts. It will be a mixed bag this year, but our Construction business seems to be off to a solid start, relatively speaking, again, measured by the backlog and our improving momentum vector. And then we talked about Utility and Communications & Security. I mean a stable business with the Utility. The increased investments in renewables and green energy is a very positive for us over the mid- to long term. I will say that the Biden administration appears to be pivoting to their next priority, which is infrastructure. To the extent there's an infrastructure build, that would be a very positive driver for us. And in the Communications & Security business, secular growth. Of the 12 that we outlined, the overwhelming majority of those touch that business, impact that business in a positive way. So it's -- yes, we're off to a solid start. With that said, the supply chain is still impacted from COVID. The supply chains have not been rebuilt yet, and there's still uncertainty. So that's what instructed us in how we built our guidance for the year.

And weather has also been a factor here in February. I guess that kind of exacerbates the supply chain challenges. Any areas in particular in your business where you're seeing things get a little bit tight and where you're sweating a little bit more to kind of get the stuff onto shelves?

We had a few weather impacts, but they're temporal in nature. I mean this is something we deal with very consistently, whether it's ice storms, hurricanes and the like. So we're adept at that. And we -- we're a first-line responder to our Utility customers. So -- and we did, in fact, with the recent winter storms provide that level of exceptional service. But at the heart of your question, we're not seeing any disruptions now in our ability to impact customers. We've got very strong supplier relationships. We've doubled the size of the company overnight. So we're in a -- even a better position with suppliers. And that, coupled with our inventory position, where we've been very thoughtful with, I think, high inventory availability. No issues at all to date, Steve. With that said, the supply chains are not back to fully functioning. So we're working in conjunction with our supplier partners to serve our customers, but bill rates are holding up well.

Which vertical has it the most kind of challenged?

I would just say it's just in -- virtually across most of the categories, they're not back to full rates. That's why we fill this crucial role in the supply chain. We're in the middle of our suppliers and customers. One of our value props is ensuring the inventory, right, with uneven demand power. So again, we've more than doubled our inventory with the Anixter acquisition. We doubled ourselves. So I think we're in very good shape in terms of supporting demand. Here is the good news. The increasing demand curve is positive. And I think our supplier partners, along with those in our part of the value chain, are working to bring back all the operations to full 100% capacity, right, utilization. Those capacity utilization curves are increasing, which is the good news. So right now, I don't want to spike anything out because we're not through all of it.

When you look at the different segments, and you talked about kind of 3% to 6% growth for the entire company, what are the ones that are above and what are the ones that are below?

Dave, do you want to start on this?

Yes, certainly. So we outlined our 2021 guidance for the top line. As you think about the 3 strategic business units, we think that CSS, our Communications & Security Solutions business, is where we're expecting mid-single-digit growth. This is a global business. It's -- as John mentioned earlier, it's where we have the most exposure to some of those 12 secular trends that we see impacting the business. And so that's where we see the higher end of the range from an SBU perspective. Second will be our Utility & Broadband Solutions business. Keep in mind that we didn't see the same drop-off in that end market in 2020. So with that, we don't see the same recovery opportunity, but we still see low to mid-single-digit growth here in 2021. The utility market has been very stable. We're also seeing some opportunities across the broadband portion of the business, again, really focused on some of those secular trends, including the broadband investments that you're hearing many of our customers making as well as the 5G build-out. EES, our Electrical Electronic Solutions business, which is primarily where we have Industrial and nonresidential Construction market exposure, that's where we see a low single-digit market opportunity in 2021. As John mentioned earlier, we are seeing growth in residential, but our exposure is really on the nonres side. We do think that that's a good future indicator of nonresidential strength, but that's where we see some of the lower end of the opportunity across that overall enterprise 3% to 6% sales outlook for 2021.

Great. Very, very clear. When it comes to the price cost, somewhat related to the supply constraints and logistics inflation, things like that, what are you seeing on that front inflation-wise? And then how much price do you have embedded in your guidance for this year as an offset?

I'll start on that and let Dave finish the second half. We have seen a step-up in the number of price increases from suppliers and natural average percentage increases by category. It has clearly stepped up. So I think we're -- inflation has picked up a bit. That's a good thing, ultimately, right? I think it's a good thing for the health of the overall value chain. We work with our supplier partners to push that through. Net-net, as I said, it's a good thing over time. And so far, Steve, we're having success in pushing those price increases through. Dave, you want to -- may want to tag on to the back -- the other part of his question.

Certainly. So in terms of expectations in our sales outlook for 2021, we don't include that inflation benefit on our top line. It's really difficult for us to predict that. As I'm sure you saw some various cycles throughout the last several years, really difficult for us to predict what that inflation will look like given the broad portfolio of products and suppliers that we deal with. So that's not included right now. But as John said, we are experiencing some of that inflation pressure on costs. We are passing that through to our customers. That is our stated objective. In general, we see in the history, inflation is generally a good thing for distribution. We're able to pass that margin improvement across to our customers. And again, it goes back to how we're able to provide them with value and assist them in running their operations that enables us to pass through those price increases.

Right. I got a question from a client here. This should be a layup for you, guys. Does supply chain being impacted help you guys as the largest player to take share versus smaller guys who may be more impacted?

Yes. The answer -- the short answer is yes. One interesting thing, and I think that if coronavirus did one thing, it put a spotlight on the fragility of these global extended supply chains. So our customers are talking quite a bit about the integrity of the overall supply chain and just ensuring that it's in place and can support their business effectively. So they're -- we're seeing and hearing again this increased -- increasing discussions around we want to consolidate our supply base, have the right partners, and that includes even looking at some near-term near-shoring and reshoring. So this term supply chain integrity and supply chain resilience, those descriptors are being increasingly raised by our customers. And we've doubled the company overnight in our leading position. That puts us in the position to provide a -- it's a core part of our value prop, a core part of our value proposition.

One last question for me, just on the margin. How do you think mix plays through? You mentioned that the CCS (sic) [ CSS ] business should be growing above average. I would think that's a positive driver. Does that lend itself to upside this year from a mix perspective?

Dave, do you want to handle that?

It does. If you take a look at the pro forma 2019 that we published on a combined company basis, our CSS margins were better than the line average, roughly 7.7% EBITDA margin in 2019. So as we see that higher growth potential against that business, we do expect that there will be some margin improvement opportunities. We called that out in our outlook for 2021 as well. So we're very excited about the opportunity going forward, not just from the margin expansion from mix, but also how we're integrating the companies and driving cost synergies.

Okay. I think we're at the end here. I appreciate your time. I hope you have a good day today, and we will chat again in April or early May, whenever you guys are giving earnings there. So thank you very much. I appreciate it.

Steve, thank you.

Thanks very much.

Great being with you.

Thanks for having us.