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

All right. Great. Up next, we have Dave Schulz, EVP and CFO of WESCO. He's going to give a little bit an intro here, and then we'll go right into Q&A. Dave?

Yes, great. Steve, thanks very much for having us. Appreciate all of your time today. Good afternoon. I'd also like to introduce Will Ruthrauff, who is our Director of Investor Relations, who's been joining me today. And it's my pleasure to talk today about our company and what's been happening over the last several years. I know many of you are familiar with the Anixter acquisition that we completed in the middle of 2020, but I'd like to walk you through a couple of additional details surrounding the new WESCO. So today, WESCO was an $18 billion global business-to-business distributor and supply chain solutions company. We operate in 3 segments: Electrical & Electronic Solutions, Communications & Security Solutions and Utility & Broadband Solutions. And our purpose is to build, connect power and protect the world. We have 18,000 associates that live that mission every day, and they service more than 100,000 customers in over 50 countries. I will highlight that the U.S. and Canada make up 88% of our sales in 2021. And through our differentiated and leading value proposition for customers and suppliers, we're positioning WESCO to be the best tech-enabled supply chain solutions provider in the world. WESCO is well positioned to create value for our shareholders. The first is through industry consolidation. As I mentioned, we completed the merger with Anixter in June of 2020. This combined 2 leading Fortune 500 companies of equal size and enabled significant cost and revenue synergies. The merger also expanded our portfolio and customer base to enable above sales -- above-market sales growth. And we've delivered a total stockholder return of over 200% since the acquisition closed in June of 2020. WESCO is also well positioned to several secular growth trends, and we are focused on leveraging our big data through digitalization. We have a track record of generating significant free cash flow. Our current focus is on delevering. But going forward, our strong free cash flow provides significant options for future value creation. So 2021 was an exceptional year for the company, capping off the first 18 months post-merger with Anixter. We achieved new company records for sales, which were up 14% versus the prior year on a pro forma basis. We delivered a record backlog, and we had delivered adjusted EBITDA up 37% versus the prior year on a pro forma basis. So we're outperforming the markets. We've over-delivered on our synergy commitments. And we're deleveraging faster than we thought we originally would. All of this while operating, as you know, against the headwinds of the pandemic, global supply chain disruptions and also high inflation. Let me walk you through where we are with synergies. We've had outstanding execution. When we first announced the merger in January of 2020, we expected to deliver $200 million of cost synergies. Since then, we've raised our cost synergy target 3x. We now expect to deliver $315 million of cost synergies by the end of 2023, and that is the number against the 2019 pro forma. We also have had outstanding execution of cross-selling and a realization of sales synergies. And our pipeline of opportunities continues to build. So we raised our sales synergy target twice since the initial announcement. We now expect to deliver over $600 million cumulative of cross-sell by the end of next year. This has been one of the areas that we did not have much visibility to prior to the merger closing. We did compete with Anixter in certain end markets. So this was in clean room. What we found once we did close that there was much less customer overlap than we had thought, which is enabling more opportunities for cross-sell. I mentioned earlier that we made substantial progress with respect to leverage following the merger. As a well-run B2B distributor, we've delivered strong free cash flow across all phases of the economic cycle. Our strong track record includes rapidly deleveraging after acquisitions, and that's been the case with Anixter. We reduced our financial leverage from 5.7 turns when the acquisition closed. We ended 2021 at 3.9 turns of leverage, again, a reduction of 1.8 turns in just 18 months post-merger. One of the things that we're also focused on is our capital structure. We recently amended our credit facilities to provide more liquidity. And we do expect to be back within our target leverage range of 2 to 3.5 turns during the second half of 2022. One of the things that the merger has also enabled is to digitally transform our business to provide growth in the future. So we're leveraging the integration with Anixter to invest in digital, consistent with our vision of becoming the best tech-enabled supply chain company in the world. And our digital transformation and unlocking the power of our big data will enable new ways of working, create new business models and put WESCO at the center of our global supply chain tech ecosystem. So we're still in the very early stages of our digital transformation, but it's already very clear that our opportunities will be significant. And we'll be sharing you our progress along the way, including with an Investor Day later in the year. We are seeing the benefits of the broader portfolio of products and services following the merger. And we believe that we have an outsized opportunity relative to some secular trends that we will benefit from going forward. One of the things that the merger enabled is for us to mix shift our company into higher growth areas. We expect these higher growth areas to benefit the company over the next several years. This page highlights the numerous growth drivers and opportunities across our 3 global businesses as a result of our combined portfolio and the attractive secular trends, which we view as electrification, increased automation and IoT, trends in green energy and grid modernization and 24/7 connectivity. We also see opportunities from supply chain consolidation and relocation to North America from some of our key suppliers. Bottom line, all 3 of our businesses are very well positioned for long-term growth. Earlier this year, we provided our 2022 outlook summarized on the page that you see here. We expect to outperform our markets again this year, expand our margins and deliver double-digit earnings per share growth. We are carrying strong momentum into 2022, and the year is off to an excellent start. On our last earnings call, we noted that January sales were up mid-teens versus the prior year. That momentum has continued into February, with sales again up in the teens versus the prior year. So as I mentioned, we're in the early stages of unlocking the power and the performance of the new WESCO. These are very exciting times for our company, and our future has never been brighter. With that, Steve, I'll open it up to your Q&A.

Absolutely. Let's just take a step back here. I'm going to talk about the long term and Anixter in a little bit, but just want to get the most recent kind of near-term update. I'm not going to ask you Russia exposure. But here in the U.S., what are you guys seeing so far kind of quarter-to-date since you reported?

Yes. Absolutely. And again, we mentioned that January sales were up in the low teens. We've seen our sales pace continue. And through the end of February -- our February sales were again up in the teens versus the prior year. Keeping in mind that first quarter of 2021 was our easiest comparison of the prior year, but we've not seen any slowing of the momentum through the month of February. As I mentioned, we do have exposure outside of the U.S. and Canada, 88% of our sales in 2021 were basically U.S., Canada. We have a very, very minor rounding error exposure to what's happening in Eastern Europe.

I was joking around.

Less than $5 million, but we do have employees that are there that we're obviously focused on their safety.

And when it comes to price and volume as a percentage of that, I mean, how does that -- just remind us how that trends over the course of the first and second quarter.

Yes, absolutely. We're very pleased with our ability to pass through price, given the high inflation that we've been experiencing. In 2021, we were actually positive on price/cost. And again, it's one of the key components of our margin improvement program that was part of the legacy Anixter business that we've been able to expand across the entire combined portfolio. And one thing to keep in mind there is that this Anixter margin improvement program pre-merger was getting gross margin expansion at a time when most distributors were seeing contracting gross margin. We've combined that with some new technology, and we've deployed that across our larger business. We've been getting the benefit of that. If you think about price itself in the back half of 2021, we saw a 5% to 6% benefit from price in our revenues. As you think about our guidance for 2022, we've got a plus 5% to plus 8%. That only includes pricing that's already resident in our financial results. So it's very difficult for us to predict supplier price increase notifications, the timing and when it will impact our business.

And just an update on that -- on the supply chain dynamics, you had said last quarter that CSS saw the biggest impact, some delayed projects, 1% to 2% of sales. Maybe talk about how supply chain is impacting you guys and then maybe some of the projects that you're targeting.

Certainly. The -- like every company, we're dealing with the supply chain disruptions. And many of our suppliers have been very good about keeping us up-to-date on how they're progressing against solving that disruption. Across our business, we've had the benefit of being able to use substitute supply sources. So if one of our leading vendors was not able to meet our demand, we've been able to go to alternative suppliers in order to meet the needs of our customers. There are certain product categories that have been and have continued to be difficult to obtain. And that's where we're seeing some of those delays that we experienced in our Communications & Security Solutions business because some of that was related to chip availability and -- but we've been working very closely with our suppliers. Again, a lot of what we do is project-based, and we work very closely with the suppliers on those projects to make sure that they can meet the demand and fulfill the project schedule. We have had some slippage, primarily in the CSS business. But again, we've been able to work our way through that. We could have had higher sales in 2021, if not for those supply chain disruptions, probably in the area of 1 to 2 points mostly in the CSS business.

Which products are kind of the long -- specifically the long poles in the tent when it comes to these delays?

A lot of the delays are being caused by the availability of the chip for the manufacturing process. So particularly within our CSS business, high-tech switches and -- requires a semiconductor. That's where we've seen some disruptions. We've also had some disruptions across other product categories just based on the tremendous demand. And there were some product categories that are used also in residential construction that we had difficulty obtaining from our leading suppliers. We've been able to work our way through that. Things like fiber optic cable, also very difficult to get, just given the manufacturing capacity issue.

Anything on the automation front from that perspective?

We have had some issues with automation with certain suppliers and...

The PLC suppliers?

Primarily on the PLC suppliers, certain brands within certain parts of the country that we service, we have had some issues. But again, we've been growing our backlog. We know that those projects are going to ship. It's just a matter of when we have certainty of supply.

Are they U.S. brands or are they foreign brands?

These are primarily U.S.-based companies. And most of our business, we are sourcing from the local entity. So sourcing in Canada, we source from -- our supplier is Canadian legal entity, same thing here in the U.S. But they're primarily the North America-based companies that we're still seeing some issues.

And with these impacts, these aren't 5% to 10% impacts. These sound like they're like maybe 1% to 2% here and there.

Correct. And again, I think that, that is -- part of our job for our customers is to ensure that we can leverage our supply chain solutions, help them meet their technical requirements, drive productivity on their job site. But that also means we've got to be able to provide them with alternative to products that they may have specced originally. If we can, we can substitute that specification with a substitute product.

Right. Can you talk about the different -- the growth outlooks for each of the segments when you look at the 5% to 8%...

Certainly. So we expect all 3 of our strategic business units will be within that 5% to 8% range that we have for the total company revenue outlook. The one thing that I'll specify is that our Utility & Broadband Solutions business does have a contract that in 2022 is switching from a full revenue to a supply chain services fee contract. So we'll lose about 0.5 points on the total company because of that. No change to EBITDA, but it will impact our sales. But that will be roughly a 2-point impact to our Utility & Broadband Solutions business. And again, this is just how we fulfill and meet the needs of the customer. They will basically be owning the inventory. We will just service their business with their inventory versus in 2021, we owned the inventory and basically got full sales credit.

That business is really strong in the fourth quarter. What drove that step-up? And then maybe just discuss the moving parts between power gen and T&D there going forward.

Yes, certainly.

Or anything else that's driving that going forward?

So our Utility & Broadband Solutions business is made up of 3 groups within our company. One is our pure utility business. The second is our broadband solutions capability. The third is an integrated supply component. In terms of size, it's mostly utility, followed by broadband and then our integrated supply. The -- in the fourth quarter, we saw double-digit growth across all 3 of those elements. And if I compare that to what we saw earlier in 2021, we were still catching up with our integrated supply business, but we're seeing strong support from our customers and increased spending from our customers on the utility side. Our broadband business -- that is one of the secular trends that we've called out, and we've been very pleased with the progress that we're making with our customers in some of the projects that they have. So our broadband business has been doubling -- has been growing strong double digit. That contributed to the 22% growth in the fourth quarter for that segment.

And is that 5G, did you say?

It's a combination of 5G, fiber-to-the-x. So there are a combination of capabilities within our broadband business that we've been able to take advantage of. And again, I think we're just scratching the surface in terms of the amount of projects that will be coming down the road, just given the increased requirement for bandwidth.

And that's sustainable in your view?

We believe that, that is sustainable and further supported by whatever investments the government continues to make. Right now, we are benefiting from RDOF, so the Rural Development (sic) [ Digital ] Opportunity Fund. That was approximately a $25 billion commitment by the U.S. government. We've seen some of those projects get released that we've already been able to recognize as part of our business in our revenue for our utility business.

And then on the Communications & Security Solutions business, data center, network infrastructure, maybe talk about the different pieces and what you see there over the course of this year, maybe more on a volume basis versus revenue that includes the price.

Certainly. And I'll start by saying, of our 3 business units in 2021, we did 14% sales growth on a pro forma basis. The business that grew the lowest was our CSS business grew 9%. Two factors really contributed to that. We know that it will be bigger going forward with the opportunities that we have. The first is the supply chain constraints that we already talked about. The second is in terms of pricing, CSS was the business that had the lowest benefit from price. Many of the key suppliers were not increasing price at the same rate as some of those that impacted our EES or our UBS businesses. So their pricing benefit was much lower than the other segments. We see that business having a tremendous potential going forward. We have a combination of a network infrastructure business. And then we have the security solutions business within that strategic business unit. That includes supporting the growth in data centers. And depending on your point of view, that is at least a high single-digit growth opportunity going forward. It's also supported by, again, this increased demand for data and 24/7 connectivity. So again, we think from a secular trends perspective, we are well positioned to take advantage of those opportunities in the next several years.

And you see that you have visibility into that -- into the data center this year because it's been pretty strong in the last couple of years. You're saying -- you think high singles from a volume perspective?

We think that there's still a high single-digit opportunity within the data center market and, again, feel very good about our position. We have a global capability to service these customers. And many of these customers are asking for that capability to be not only build the data center in this market, but we want to build the exact same model in another market. Given our global scale, we are able to support that growth, both here in North America, but also internationally.

How do you interact with the IT channel there? Because, I mean, I think it's like the CDWs of the world and some other guys that have more of a traditional channel into that market. Are you guys coming with -- trying to come with kind of like similar products? Or are you both coming at the market with a different product set? Or will this evolve where you're going to kind of sell more of what they sold and they're going to realize they maybe need to sell a little more of what you sell? I mean how do you think about that? Data center, I feel like, is right the merger with electrical and IT.

The data center for us is an opportunity to sell many of the required components, but not -- we don't sell the servers necessarily. We're primarily selling the racking, the cabling. In some cases, we're selling the power supply in the lack of power supply.

That was kind of more of what I was getting at. I still think those guys still did some of the infrastructure-related stuff in addition to the IT. So you're talking about doing the infrastructure as well.

Absolutely. And again, we have -- because of the merger, we've been able to sell this larger portfolio. And when you think about what's required for a data center, the legacy Anixter business had a phenomenal business model. They were doing outstanding work. Add on top of that, that we now have this Electrical & Electronic Solutions business, the legacy strength of the WESCO company, being able to bring that together to a solution for our customer in the data center area. So that's where we're really excited about, the complementary portfolio that we've been able to bring together through the merger. And again, it's -- we see this as a huge opportunity for our company going forward.

And then what about Electrical & Electronic Solutions? We talked about industrial a little bit, but maybe just break that down into the various projects, and how fast those are going and what you're seeing?

So it's our largest strategic business unit. And the sales within that business unit are evenly split between a nonres construction business, an industrials business and an OEM business. And so when you think about our construction business, we primarily are servicing large- and medium-sized nonresidential projects and customers. We don't have a large exposure -- very minimal exposure to residential. And that sets us apart from some of the other players within our industry. And again, depending on your point of view, we're just starting to see the recovery broadly in nonres construction. There's still some estimates that nonres construction will be flat to up slightly here in 2022 and then more of a full recovery in 2023. So again, we think that we've been able to build a fantastic capability by taking our legacy WESCO business and combining that with this wire and cable business that Anixter had. And again, it fills out the portfolio very well for us. On our industrial business, we primarily are servicing customers with multiyear contracts for maintenance and repair parts. We're able to provide them with technical assistance to work through their solutions requirements. And again, we started to see that business really start to pick up in the middle of 2021 and very pleased with the progress that we made in the back half of 2021. So again, as we see that industrial recovery continue, that's built into how we think about the market for 2022. And then we have a strong OEM business, again, through a combination of capabilities that we've been able to build over the years. We're servicing many large customers within that space. And again, we saw a nice recovery of that in the second half of 2022 -- I'm sorry, 2021.

You guys talked -- used to talk about an incremental margin kind of a drop-through margin that was reasonably high. Is that with Anixter? Does that change? How do we think about kind of the algorithm for incrementals going forward?

Yes. It doesn't change materially and...

And I guess that's a volume incremental because you got pricing and things like that.

Right, right. And that's how -- it doesn't change materially. But from a pull-through perspective, we have always talked about a 50% increase in gross profit dollars should fall through to our bottom line. And we think that, that's the hallmark of a good business-to-business supply chain solutions company, making sure that we're not only driving gross margin expansion, but then also managing our costs very efficiently. And so that 50% pull-through still is the right way to think about our business going forward. The one thing I'll caveat that with is that requires us to have roughly a 3% plus top line. So when you think about our cost structure, our SG&A is primarily people cost. And when -- typical inflation on people costs, we need that top line to be able to support that 50% pull-through.

Right. On the absolute kind of normalized margin side, I think you guys were at 6.5% back in like 2014 on margin. Simply adding synergies to that gets you like just above 7%. Is that the right way to think about the longer-term margin entitlement? Or is there something a little bit different about the mix of the portfolio, anything else?

No. I think that, that's the right way to think about it. So from an EBITDA perspective, we did 6.5% in 2021. We've guided an incremental 20 to 50 basis points of EBITDA margin here in 2022. So rough around 6.7% to 7% adjusted EBITDA margin. And again, we think that this all boils down to the value proposition to our customers. And we've got to continue to demonstrate that we are adding productivity and efficiency to their business, and then we need to get paid for that. And I think that we've been laser-focused on reapplying the legacy Anixter margin improvement program broadly. That's keeping our focus on the gross margin line. And we are very clearly focused on driving the appropriate efficiencies within our SG&A line. And so we are focused on expanding margin here again in 2022.

Maybe a little more color on that SG&A. How do you see that playing out over the next couple of years? I mean is that something that grows a little bit lower than sales? Or how do you think about that?

Our goal is to always grow our SG&A below the rate of sales, just to drive that scale benefit for our much larger company than we've had historically. The -- we've got a couple of headwinds like everybody in 2022, primarily around the inflation impact on people costs, but also the inflation impact on freight and logistics. So we called that out as a 20 basis point headwind here in 2022. We're working very hard to offset that, just like everybody. But again, that is something that we've highlighted. That was different than 2021. 2021, we didn't see that same impact because we had recently negotiated new contracts from an integration perspective.

How big a percentage of cost of sales is freight?

Still relatively minimal. So if you think about the variable cost to serve, our business is between 4% and 5% of sales. And the variable component is primarily the freight, the supplies necessary to ship out the product and then the incremental commissions on the sale.

Right. I think we had a question over here. Can you pick up the mic maybe just for the webcast?

So getting back to the price/cost. I just wanted to understand -- so I can remember a time when you struggled with that. It wasn't as good as it was in 2021. There was something about the Anixter model that was either something about their model or best practices that you've brought over to your side of the house. Or is it just scale? So I wanted to understand that. And then the second part of the question is, I'm assuming that you're pricing for -- to protect gross margin dollars, and then you have some other costs that you're cutting variable costs that you can cut that protects the margin. So those are the 2 sides of the question.

Yes. Certainly, the -- prior to the merger, we at WESCO had invested in some training and some additional systems to assist our sales force with pricing for value. So we had been down a path that I would honestly say was not as comprehensive as what we learned from the Anixter business once we were able to get behind the scenes on that. It has been a huge component of the success that we've had post-merger is leveraging that margin improvement program across the entire enterprise. Part of that is ensuring that we're pricing through the value and making sure that we understand not only the cost to service our customers, but also making sure that we understand what have we done previously and make sure that we're pricing appropriately. So I would say that we've been able to leverage that, and we're getting good results from it. And one of the things that we're focused on is leveraging that capability, making sure that we keep it up to date. And we're recognizing and compensating our sales force for not only margin expansion, but also cross-sell. And so that all comes into the equation as we think about price/cost. And again, it is really back to a value-based pricing model as opposed to what you may have heard or may have seen from parts of WESCO previously where it was really more of a cost-plus model.

And then the gross margin dollars [indiscernible]?

Our goal is to make sure that we are maintaining our gross margin percent. And so that's where -- again, from our perspective, we're asking our sales reps to make sure that they can protect the margin. And we can only do that if we're demonstrating that value proposition to the customer. One thing I'll highlight is, prior to the merger, we used to talk about $0.70 of every dollar that we sold had some supply chain service attached to it. As we've brought Anixter into our business, we've obviously looked at how that has changed. It hasn't changed materially. And so that service component and being able to drive the productivity, particularly now given labor constraints and supply chain disruption, the more that we can demonstrate that value for the customer, the more we think we deserve to get the margin, but we've got to earn it every day.

Any other questions? Let's talk about kind of the longer term -- long-term sales growth algorithm in your mind when you think about how fast the markets are growing, what kind of market share you can take now with this new organization -- expanded organization, what does that algorithm look like?

Yes. We are very clearly focused on expanding our revenue through share gain and the benefit of the cross-sell. So as you think about even for our 2022 guide, we've assumed that we're going to get 2 to 3 points of market outperformance. And as we think about the base markets themselves, we think about -- we were typically the GDP plus and then add on 1 to 2 points of market outperformance. Right now, I would position it as given what's going on within the secular trends, we think that the markets will grow faster than GDP. And again, we're now targeting 2 to 3 points of outperformance from both share and cross-sell going forward. So...

So what is -- I guess you're talking about dollar value market share because, I mean, where is price coming -- isn't price a pretty significant driver for '22?

Price will be a significant driver. But remember, from what we saw within 2021, we saw roughly 5 to 6 points in the second half only. So annualize that to a little under 3 points for 2022, we've outlined that as the bottom end of our market range. We've assumed 3 to 5 on market. So yes, there is going to be some pricing impact.

Right. Because I mean you start adding up these 2 to 3s, like 3% GDP, 2% to 3% market share gain, 3% price, I mean, like you're getting to the high end of your range with the base case.

Right. And again, it's very difficult for us to include the impact of new price into our outlook. So we don't include it. What's included in our market assumptions and our outlook for 2022 is the carryover benefit of pricing from 2021. Why do we do that? A lot of these supplier price increase notifications will go out. They'll have an effective date. But we've already negotiated project pricing, and that will be protected by our supply chain partners. So depending on what we already have in our backlog, what's already being shipped, we don't see those price increases on the effective date that the supplier sends them out. And to put it into context, we talked about on one of our earnings call that we were seeing price increase announcements in high single digits, but we were only seeing 5% hitting our revenue line. So again, it's difficult for us to project. So we don't include it in the outlook until we begin to see it.

How do you measure cross-sales? I mean do you -- is it -- you just assume that wallet that's coming to you, that wasn't coming to you is now -- that's because you guys are together? How do you measure that?

Absolutely. The -- we put in place a very strict protocol for taking credit for a cross-sell. And it has to be a sale that was generated due to a capability that the company did not have pre-merger. And we use a very rigorous process to track the actual sale. It goes through and gets approved as a cross-sell. And then once it's approved as a cross-sell, we actually pay an extra commission on it. And so because we're paying the commission we have, we have to make sure that we stay within the guidelines that we have provided to our sales force. So again, these are incremental sales. I gave an example earlier today of we had a legacy customer from one of the companies that was a legacy Anixter customer. Anixter didn't sell switchgear in that region of the world. And the customer came to us and said, hey, I hear that with the WESCO deal, you can sell a switchgear. We cut an order that week. So that's the type of cross-sell that we've been tracking. And again, we've been getting great traction, again, primarily because I think we're able to provide more efficiency for our end-use customers.

Do you feel like this combination has altered the competitive landscape of the industry? Or is it just too fragmented to -- still too fragmented to have that kind of an impact?

It's still a very fragmented industry. And prior to the merger, the top 5 players in the U.S. made up about 30% of the market. So we've consolidated that to 4 players. But again, it's a very long tail, very small competitors. To be in the top 200 list from one of our publications, you've got $14 million, $15 million of sales if you're in the top 200, right? So it's very, very fragmented. And again, our focus, as I'm sure you can imagine, is our business model is a little bit different. And we focus on a larger customer segment. We have a very diverse portfolio. Many of our competitors are heavily engaged in the residential market, which we don't play in. We also don't generally have a counter-based business model, which many of our competitors do have.

And then just lastly on the balance sheet, would you consider more M&A before you get down to your targets? Or is that something you wait to delever and then get right back at it?

We're focused on delevering, and we had mentioned before that M&A is a process. And we have looked at a couple of opportunities, knowing that it would take a while in order to -- for anything to actually occur if it was the right fit. But right now, we're focused on delevering. We do feel that there are opportunities for us to continue to expand our capabilities through acquisitions at the right time. But for now, we're focused on delevering and driving the value from the merger and making sure that we achieve the synergies on the time line. We don't want to be distracted. So it has to be the right fit from an M&A perspective. And again, we're talking more of the bolt-ons related to a capability that we know we could expand across our network.

What's the high end of the band on leverage that you would target?

So the...

If a great opportunity came along.

Well, we levered up to 5.7 turns. So I think we've demonstrated the willingness to do that for the right large consolidating type of deal. We've not specified how high we can go. Again, we recognize that we have to be opportunistic. Many of these potential acquisitions, if they're on the market and it's the right fit for our stakeholders, we want to be able to pursue it. But of course, we realize that, particularly in this environment, we have to be very mindful of leverage.

Right here?

Back on commercial space maybe being affected by [indiscernible]?

We're seeing opportunities right now as...

Question is just for the webcast. So if you...

Yes. Sorry. So the question was, are we seeing any changes to our commercial opportunity in the office space? We're actually seeing some renovation opportunities and providing services. So audiovisual as a service, we highlighted that on our last earnings call, where we're seeing opportunities to provide the latest technology to customers that allows them to work in that hybrid model teams that works on the screen along with any of their colleagues that are working remotely or internationally. So we have not seen a specific reduction in demand within the office environment, but it's difficult for us to track that. We are seeing the benefit of increase in spending within our Communications & Security Solutions business.

My office shrunk. They shrunk my office. That's been the biggest impact on me. Other than that, [indiscernible]. Sorry, one more question.

When you get to your leverage targets, how does your company's stock valuation enter into your capital deployment decisions?

It does influence how we think about our capital deployment, and it's something that we're very mindful of. And again, we know that getting our leverage down, we believe, has opened up our company to some portfolio managers that were nervous about the high leverage. So as that comes down, we do think about capital deployment in terms of how do we continue to generate incremental value for all of our stakeholders going forward. Again, we want to be very choiceful about our capital deployment. Right now, we're focused on delevering and then expanding our capabilities organically in order to take advantage of the secular trends. We'll keep our eyes open for potential acquisitions, but we're really focused on delevering right now.

Great. I think it's all the time we have. Thanks.

Yes. Thanks. Great to see you again.

Yes.