NCR Corporation
Q1 2011 Earnings Call Transcript

Published: 30 Apr 2011

[Operator:]

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will turn today's meeting over to your host, Mr. Gavin Bell. You may begin.

[Gavin Bell:]

Thank you, Sherry. Good afternoon, and thanks, everyone, for joining us for our first quarter 2011 earnings call. Bill Nuti, NCR's Chairman and Chief Executive Officer, will lead our conference call this afternoon. After Bill’s opening remarks, John Bruno, Executive Vice President of our Industry Solutions Group, will update you on progress with respect to certain key initiatives. Bob Fishman, NCR’s Chief Financial Officer, will then provide comments on NCR’s total company financial results. Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to vary materially. These risk factors are described in NCR's periodic filings with the SEC and in our annual report to stockholders. On today's call, we will also be discussing certain non-GAAP financial information, such as free cash flow and results excluding the impact of pension and other items. Reconciliations of non-GAAP financial results to our reported and forecasted GAAP results and other information concerning such measures are included in our earnings press release and are also available on the Investor page of NCR’s website. A replay of this conference call will be available later today on NCR’s website, ncr.com. For those listening to the replay of this call, please keep in mind that the information discussed is as of April 28, 2011, and NCR assumes no obligation to update or revise the information included in this conference call, whether as a result of new information or future results. I'll now turn the call over to Bill.

[William Nuti:]

Thank you, Gavin. Good afternoon, and thank you, all, for joining us. The first quarter marked a successful start to the year for NCR. Our results came in ahead of what we expected for the quarter and featured top line growth across all our business segments, strong order growth in our core industries and improved gross margins resulting in a 33% increase in NPOI and an 80% increase in non-GAAP earnings per share over the prior year period. The first quarter of 2011 is the best Q1 earnings performance for NCR since the Teradata spin, including the dilutive impact of Entertainment. It's clear, as we meet with customers around the world, that our strategic investments we've made in our company, products and services are resonating across all of our end markets. At the same time, we continue making good progress in our efforts to strengthen NCR from within. This quarter, we will begin reporting on a line-of-business basis. As such, we are now reporting revenue and operating income on 4 segments

[John Bruno:]

Thank you, Bill. And good afternoon, everyone. Bill discussed our core lines of businesses, so I'd like to give an update and provide some additional detail on our progress deploying self-service solutions across our Entertainment and other Emerging Industries segment. Looking first in Entertainment, we ended the quarter with approximately 8,900 kiosks deployed compared to 8,000 at the end of 2010. Our average fleet age remains around 8 months, and we grew our quarterly same-store sales, 16% sequentially and 51% year-over-year. As we discussed on our last conference call, we decided to scale back the rate of new deployments during the fourth quarter of 2010 and utilized infield performance data to evaluate how our deployed kiosks were performing. This allowed us to more thoroughly evaluate potential and future deployment locations to ensure that they are consistent with our long-term profitability objectives. A total of 1,200 new deployments were completed in Q1 in a select number of large grocery, convenience and drugstore partners. Key new business wins included RaceTrac convenience stores where we'll place kiosks in more than 300 locations in 5 states throughout the Southeast. We've already installed 200 kiosks in RaceTrac stores and expect the remaining kiosks to be installed by June of this year. Last quarter, I shared with you that we identified 1,600 underperforming kiosks. During late Q4 and throughout Q1, we've been hard at work to improve performance by addressing on-site issues or redeploying machines to more strategic locations where we believe we can grow transactions and improve our per-unit economics. The effort is going well. The team is moving with speed and efficiency, but also with great diligence as we zero in on per-unit economics. During the first quarter, we redeployed approximately 300 kiosks, with solid retail partners in geographic locations that met our requirements. We expect to redeploy another 700 kiosks in Q2. We continue to believe in and test premium pricing for selected content. We expanded our test run with Twentieth Century Fox in the first quarter from 4 cities to a national day and date rollout with the hit film Black Swan, and the results continue to surpass our expectations, confirming that our customers enjoy having the choice of renting the latest new release movies at a premium while still retaining access to our broad, $1 per night movie selection. Additional and broader testing is set to take place during the second quarter, as we strive to further demonstrate the market potential of premium-priced new releases. We continue to believe there is great potential for a premium-priced content as it offers consumers even further choice, and we believe this could be a key competitive advantage for NCR in the future. Marketing is also a key element of the performance plaid. We are forming strategic relationships in an effort to increase consumer awareness around our offerings. We recognize that for a number of our consumers, the experience of watching a movie involves a bowl of popcorn and a beverage. As a result, we're utilizing cross-selling with brands like Coca-Cola, Orville Redenbacher popcorn and Anheuser-Busch to help drive transaction volumes across our kiosk footprint. NCR entered the Entertainment business just under 2 years ago, and we are fine-tuning our site selection process with a focus on key partners and geographic density. We're also refining our business model by testing new offers that accelerate the availability of new released titles for our customers. The potential for this businesses is exciting, and we remain confident about our ability to grow this business in the years ahead. Now let's look at the businesses that comprise our Emerging Industries segment

[Robert Fishman:]

Thanks, John. NCR's total revenue from continuing operations in the first quarter was $1.1 billion, up 6% versus Q1 2010. First quarter revenues include a 2% benefit from foreign currency translation. We reported GAAP income from continuing operations attributable to NCR of $10 million or $0.06 per diluted share. This compares the GAAP loss from continuing operations attributable to NCR of $19 million or $0.12 per diluted share in Q1 2010. NCR's results from continuing operations includes special items in both periods. Income from continuing operations in the first quarter of 2011 included $51 million or $0.22 per diluted share after-tax of pension expense and $3 million or $0.01 per diluted share of benefit from the final settlement of a litigation matter. Income from continuing operations in the first quarter of 2010 included $56 million or $0.25 per diluted share after-tax of pension expense and $5 million or $0.02 per diluted share after-tax of incremental costs related to the relocation of the company's global headquarters. Excluding these items, non-GAAP diluted income per share was $0.27 per share in Q1 2011, compared to non-GAAP earnings of $0.15 per diluted share in Q1 2010. To analyze NCR's operational performance without the effect of special items and pension expense, please see the supplemental financial schedule included in our earnings press release that reconciles our GAAP to non-GAAP results. Excluding the impact of special items and pension expense, our Q1 2011 gross margin was 21.8%, up 30 basis points from 21.5% in the prior year period, resulting from higher product sales, favorable mix and the successful implementation of cost reduction initiatives driven by our continuous improvement program. Operating expenses, excluding pension expense and special items, were 16.6% of revenue in Q1 2011 versus 17.3% in Q1 2010. The decrease was the result of a continued focus on expenses even with a higher revenue growth. Total company non-GAAP income from operations or NPOI was $57 million in the first quarter compared to $43 million in last year's Q1. Other income, net, was $6 million the first quarter of 2011, compared to $1 million in the prior year period. Other income in the first quarter of 2011 included a $3 million benefit from a litigation matter settled during the quarter and $2 million from the sale of certain patents. Income tax expense was $1 million in the first quarter compared to a benefit of $1 million in Q1 2010. NCR expects its full year 2011 effective tax rate to be approximately 27%. Turning to the balance sheet, cash on hand was $480 million at March, at the end of the quarter, with total debt of $11 million, as well at the end of the quarter. We repurchased $35 million or 1.8 million shares of NCR stock in the first quarter. Approximately $197 million of board authorization remains under our current share repurchase plan, with an additional $13 million available under the dilution-offset program. Moving to the cash flow statement, NCR generated $44 million of cash from operating activities in Q1 2011 compared to $22 million in the prior year period. Cash from operating activities in Q1 2011 was positively impacted by a slight improvement in working capital period-over-period. Net capital expenditures totaled $39 million Q1 2011 compared to $51 million in the prior year period, primarily as a result of reduced capital expenditure in the Entertainment business. Discontinued operations yielded $1 million of cash outflow in Q1 2011 compared to $8 million of cash outflow in Q1 2010, primarily due to reduce spend related to the Fox River matter. NCR generated free cash flow of $4 million in Q1 2011, compared to free cash flow used of $37 million in Q1 2010. NCR defines free cash flow as cash flow from operations and discontinued operations less capital expenditures for property, plant and equipment, in addition to capitalized software. We expect free cash flow for full year of 2011 to be in the range of $50 million to $75 million. Entertainment CapEx is expected to be about $50 million lower in 2011. The total CapEx for the company will be about $180 million, and depreciation will be approximately $160 million. Cash taxes are expected to be approximately $70 million in 2011. Cash funding requirements for the Fox River environmental matter are expected to be the range of $30 million to $40 million cash outflow in 2011. And finally, we'd expect working capital to be slightly higher, as revenues are expected to grow in 2011. Free cash flow tends to vary by quarter, and we expect lower free cash flow in Q2 and Q3 to support higher revenues, offset by increased free cash flow in Q4. Finally, as Bill mentioned, we transitioned to a line-of-business reporting structure beginning in the first quarter of 2011. Our revenue expectations on a constant currency basis for each line of business for the full year 2011 are as follows

[William Nuti:]

Thank you, Bob. NCR had a good start to 2011. Order momentum has carried over from 2010. We entered Q2 with a strong backlog, and we're doing a good job of attaching and expanding NCR Services. Our Entertainment business is seeing improved performance, as we implement our plan to strengthen and add to our geographic footprint with an objective of driving better per-unit economics. Our Emerging Industries are knocking wins as we educate potential customers in fields like travel, about what our technologies can do for their business. And internally, we are delivering on our cost and productivity improvement goals. As committed and on schedule, we've successfully transitioned our reporting model to a line-of-business structure consistent with how we're managing the business on a global basis. We are also broadening our go-to-market capabilities through our commitment to grow our indirect channel, which will help us capitalize on our global leadership position in self-service. And finally, we are also executing on our strategic plan regarding pension and seeing improved results on the balance sheet. The results we're delivering across the organization are being driven by our strong strategic focus, our commitment to operating discipline and in ongoing innovation in every part of our company, resulting in an increasingly competitive product portfolio. This combination is enabling us to offer an unmatched value proposition to our customers across every segment we serve, creating an environment to grow our revenues faster than the secular market. Match that with the increasing productivity and efficiency within NCR and ultimately, we are positioning the company to generate profitable revenue growth and increased value to our shareholders. Thank you, and I would now like to open up the call for questions. Operator, you can open up the call.

[Operator:]

[Operator Instructions] Our first question comes from John Williams of Goldman Sachs.

[John Williams:]

So I guess I'd be remiss if I didn't ask the question on the Entertainment business. Just curious to get an update on what we've talked about recently, the strategic options, what you guys are thinking? Obviously, you're planning for it to be there, but just curious to get, Bill, your insights into what's going on.

[William Nuti:]

Well, I think, John, the only thing I would add versus what I talked about in January with you is the fact that with Dish Network now acquiring Blockbuster, we think that our optionality has improved. So that would be the good news, and I'd leave it at that for now.

[John Williams:]

Okay. In terms of what you think -- if you were to divest that business in any point, what would the dollar amount that you would need to clear in terms of what you've already invested? I just want to make sure we have that straight.

[William Nuti:]

John, I think we're more focused on optimizing that business and making that business a success. It's done a really good job for the company in Q1. We haven't put a lot of effort into valuing it, per se. And I don't think we're concerned about, if we ever were in a position, where the business was divested, where we could get our initial investment plus back.

[John Williams:]

Okay, fair enough. Other question was just on the penetration into the Tier-2-, Tier-3-type retailers, and just -- obviously, that takes some time. It's not an easy sell, I would bet. But just in terms of the progress that you're making there, I guess, maybe if you could just characterize what your typical conversation is like with those retailers at this point, and how that may be different from say, 3 or 6 months ago?

[William Nuti:]

Well, our primary go-to-market to the lower-tiered retail customers on a global basis will be through the channel. We just had our first-ever global partner conference in Orlando, Florida. We were thrilled, actually, with the participation. As I discussed in the prepared remarks, we had over 180 diverse, different partners show up. Some of whom, many of whom, don't do any business with NCR today. And most of whom, if they do business with us, do a very small amount of business. And they represented over 65 different countries. Those partners are partners who will go to market with us in all areas of the world, all markets, for financial, retail and other industries. However, if you looked at orders as a good proxy for Retail, we had 33% growth in orders in the last quarter. And if you look at some of the other segments of the world, for Retail, that would be traditionally markets we didn't serve. You can look at markets, for example, like BICMEA, the emerging markets where -- on a small base but retail was up 325%. You can look at markets like South Asia-Pacific where we traditionally haven't done business and orders were up 90%. You can look at markets like CLA, Caribbean Latin America, where we had orders up 134%. So we are making progress and beginning to win business in markets that are not traditionally strongholds of NCR in Retail, but to your point, it takes time to install an indirect model. So this is something that's going to play out over the course of the next year or 2. However, I'm very encouraged with the talent we have in the company, the cultural commitment to the success of the channel and the quick upticks, so far, of the business.

[Operator:]

And our next question comes from Katy Huberty of Morgan Stanley.

[Katy Huberty:]

In the press release and in the prepared remarks, you mentioned a number of emerging markets that had strong financial services growth in the quarter. Can you just talk about whether you're seeing a new inflection point of ATM adoption or is that just a continuation of what you've seen in prior years?

[William Nuti:]

It's largely a continuation, but we have seen improved growth in certain markets. If you look at the total BICMEA theater, which is the Brazil, India, China, Middle East and Africa, our order growth in the quarter was 20% in that region on a year-over-year basis, a pretty strong growth, Katy. If you looked at revenue in that space, for BICMEA, you saw revenue growth in that space of 19%, so very strong revenue growth. We're seeing good growth in the Middle East and Africa and in China and India, in particular, in those markets. And I'd say that even if you took a peek at a region like South Asia-Pacific that has smaller emerging markets, with the likes of Indonesia and Vietnam and others, we grew orders 50% year-on-year in South Asia-Pacific in Financial. So I think what we're seeing is there is in the emerging markets, no question, a continuing rollout of ATM products and ATM solutions as those markets are growing. And as financial inclusion becomes more important, then density becomes an issue. We've spoken many times about the importance of watching density in terms of ATMs per million people, and how far off it is in some of these emerging markets. We're continuing to see that growth. Yet, that being said, a number of our new products are making a huge difference in our growth. We have introduced over the course of the last couple of years, Katy, and this is recently as a few months ago, several new products that are much better positioned and priced right and at the right cost for these emerging markets. So we're seeing a market share shift of sorts in some of those markets and better margins as a result of that.

[Katy Huberty:]

And then, just as a follow-up, what are the margin implications of attacking the incremental channel opportunity? In other words, you have to invest ahead of revenue, and how do the gross margins compare in the channel versus the traditional direct business?

[William Nuti:]

Well, the good news is gross margins in the channel are much higher than the direct side of our business. So we have excellent -- an excellent margin profile in the channel. And I would say that we have already made significant investments in the channel. This is something we've been working on for a few years. And so, while I think there's more investment to be made, I don't see it -- knee of the curve, if you will, really changing our expense structure because again, we've already put a lot of wood behind that arrow.

[Robert Fishman:]

The only thing I would mention is that the order growth in South Asia-Pac in Financial was 22%, still pretty strong in that region, not the 50% that Bill just mentioned, but 22%, pretty significant.

[Operator:]

And our next question comes from Matt Summerville. [KeyBanc Capital Markets]

[Matt Summerville:]

A couple of questions, Bill, can you talk in the Retail business how you see the mix evolving over the next few quarters between the assisted point-of-sale side of the business and self-checkout given some of the dynamics you talked about in your prepared remarks?

[William Nuti:]

I would say about the same as we've seen, Matt. So I don't think there's going to be any material change in that. We just had a record quarter for Retail orders, the best first quarter -- well, frankly the best Retail quarter we've had since we did our record, with 33% growth in the quarter. And we've built a strong backlog again. The backlog is back up in the mid-teens for Retail. We were kind of concerned about that coming out of Q4, because we had such a great Q4 in Retail on the revenue side. We told you in January that we had work to do in terms of building back up the backlog in Retail. We blew it out in orders, and therefore, we've got a nice backlog. And the big chunk of that backlog is self-checkout as much as it is point-of-sale. So I think that question, I'll answer that question again probably at the -- in July to see how Q2 orders go on self-checkout. But I'm encouraged, with respect to mix for 2011, as I sit here today.

[Matt Summerville:]

Bill, you were kind enough to give some order data for some of the regions in Retail and ATM business, and I think that's very helpful from an emerging markets standpoint which all sound like they're doing very well for NCR. Can you give a little more granularity in Retail and the Financial Services business, what you're seeing in North America and now what you're referring to with regards to Europe?

[William Nuti:]

Sure. North America, we had -- in North America alone for Financial, we had order growth of a little over 4% in North America, so we were pleased with that. We see North America coming back. And what I like about North America, Matt, most of all is that we had year-over-year growth in the regional banks segment of 75-plus percent, I think it was 77% in the Regional banks. We had in North America, order growth in Retail of 75% year-on-year, a huge quarter for order growth in North America for Retail. So that's a little bit more about North America. In Europe, we had order growth in Financial of 7%, and we had order growth in -- we actually had a decline in Retail and Hospitality of 16%, and that's because we had a massive Q1 last year in orders for Retail in Europe, largely due to the U.K. last year. So we're not at all disappointed with this number from the point of view that the compare they had was just astoundingly difficult. So that's gives you a few other key, what I call, the developed markets, and some color on the developed markets, Matt.

[Matt Summerville:]

Very helpful, Bill. And then just one final. Can you talk about how NCR's backlog, overall backlog, looked relative to year-end? I think you said at the end of the fourth quarter, it was about $1 billion. Is that still where you're at today?

[William Nuti:]

No. We're just slightly under $1.1 billion. Backlog is up year-on-year, 13%. It's probably one of the biggest backlogs we've had in many, many, many years, Matt.

[Operator:]

And our next question comes from Mike Saloio of Sidoti & Company.

[Michael Saloio:]

Would you be willing to help us reconcile what the difference between product growth and service growth was in the POS segment, just so we're clear on the guidance?

[William Nuti:]

Product growth in POS, you mean product and services growth in Retail?

[Michael Saloio:]

It was in the POS, within the POS segment.

[William Nuti:]

We don't have that, unfortunately, in front of us. And I don't think we report that, specifically.

[Robert Fishman:]

Again, what we're trying to do is look at those as integrated solution sales within those lines of business. So along with hardware, software, installation, professional services and maintenance, it is the total revenue for a line of business, and that's how we report it. We'll give color geographically by line of business, but that's really how we look at the total business.

[Michael Saloio:]

Okay. But the Emerging Industries piece that you're now breaking out, when you were talking about orders last year, that was included in POS, correct?

[William Nuti:]

The Emerging Industries?

[Robert Fishman:]

No, it -- the point-of-sale was, obviously, would be a product that we sell within Retail. The Emerging Industries could consist of the businesses that John mentioned.

[Michael Saloio:]

Okay, I'll take that off-line. I guess secondly, what do you think is really leading to the market share gains in North America in the ATM business?

[William Nuti:]

I think it's two-fold. One is Technology. We -- our new products, particularly our SelfServ line of ATMs, is the latest ATM available on the market. And then some of the modules, in particular, in deposit automation, the scalable deposit module, which is the one-pass, one-slot deposit capability, which NCR only has on a global basis in the industry, which is getting a lot of attention from our customers. And the line-up of products we have, Mike, is significant in terms of low-end to high-end, good, better, best, if you will, in terms of product segmentation and getting better, if you will. I'd also say services delivery has improved quite a bit. We have done a terrific job in the company of improving service delivery. We're getting higher customer loyalty scores and satisfaction scores as a result of that. And we're gaining business on the back of great service delivery. So it's a combination of technology in terms of product line-up, modules that are best-in-class, in particular in deposit, and service delivery. And one thing I wanted to just clarify for, for Matt Summerville, this is one of the highest year-on-year backlog growths, we've had at 13%. Not in dollar terms. We've had higher backlog in dollar terms in the past. This is a good number, the $1.93 billion Matt, but it's -- 13% year-over-year is one of the higher year-over-year growths we've had, not exactly in gross dollar terms.

[Operator:]

And our next question in queue comes from Kartik Mehta of Northcoast Research.

[Kartik Mehta:]

Bill, I just want to make sure I understand something in Financial Services, you said that revenue grew 3%. But I think on a constant currency, it would've been flat. And I think in the press release, it says that you saw growth across most geographies. So is there a geography, maybe, where you didn't see growth and -- that would reconcile maybe flat constant currency?

[William Nuti:]

Yes, North America was down in the mid-single digits in revenue, but up, the same, in orders. Our Caribbean and Latin America region was up, 12% in revenue. Europe was about flat year-on-year in revenue. As I mentioned earlier, BICMEA was up about 19%. Japan, Korea was up 1% and South Asia-Pacific, it was up 2%. So that gives you a little more color, at least on revenue, not on orders.

[Kartik Mehta:]

So any reason maybe the first quarter in North America was down? Is it seasonality? Are just seeing a back-end load of orders or is it something else?

[William Nuti:]

It was a combination of one, is a tough compare it was a really good Q1 last year, I think, in this region. Two, back-end loaded orders, particularly at the end of Q4 that are rolling out now in Q2, which is why our backlog in Financial Services is huge. It's truly a big number. I mean we're very pleased with where we are in backlog. The knee of the curve on growth in Financial Services, is going to change in Q2, particularly in North America with -- through the business we won at the end of Q4 and frankly, a lot of the business we won that drove our order growth in Q1 and what we're even seeing here at the beginning of Q2. So we're pretty pleased with our position there, but I'd say it's a combination of that tough compare and the back-end loaded nature of orders at the end of Q4 that just drove that in Q1.

[Kartik Mehta:]

So it sounds like for the year, you'd expect North America to be up somewhere around mid-single digits? Is that fair, Bill?

[William Nuti:]

That's fair. That's a very fair comment.

[William Nuti:]

The services margins really improved nicely in the first quarter of this year compared to last year, and I'm wondering, is that something that you see sustainable throughout the year that you could potentially see an increase from here, or you're 20% and that's what we should expect for all of 2011?

[William Nuti:]

Our goal is to eventually get services margins into the mid-30s, so we're on a good path. That's a long term goal, and I would expect us to continue to see margin improvement on a sequential basis and year-on-year. We're working hard at a combination of 2 factors to drive that margin growth

[Kartik Mehta:]

And I guess the same question for product margins, obviously lower. Would you anticipate product margins to stay flat for this year compared to last year, or as the mix is going more international, especially some of the emerging markets, would you expect product margins to be lower year-over-year?

[William Nuti:]

Product margins, first of all, are impacted by Entertainment, Kartik, so one of the things you need to know is actually, if you strip out Entertainment, hardware margins would've been up on year-on-year. So Entertainment obfuscates the hardware margins a bit, so be aware of that. That being said, I think hardware margins will tend to be where they are. They could be slightly lower as the year goes on as the mix changed to emerging markets versus mature markets, but that's not our goal. So I'm trying to set your expectations right, that you could see hardware margins decline slightly, but I would be disappointed if that occurred.

[Kartik Mehta:]

And then just a final question, Bill. Obviously, based on your commentary on the order growth in North America and especially what you're seeing in the regional bank market, I'm wondering, as this upgrade cycle that seems to have just started, what kind of -- how long you'd expect that to last? Is this a 1 year, 2-year or 3-year, just based on your conversations with banks and the order growth that you see?

[William Nuti:]

It's kind of a 2-year thing, Kartik. It's not dissimilar to the upgrade cycle that had started several years ago in the large banks. It's going to be about 2 years, I think. The good news is when this is up, the large banks are going to be implementing new technology in deposit, and we feel pretty good about that. So I think you could have a replacement cycle opportunity coming in 2013, '14, for the large banks, as they move from what was phase 1 or first-generation deposit technology to what's currently available today, which is markedly different.

[Operator:]

And our last question comes from Michelle [ph] for Gil Luria of Wedbush.

[Unidentified Analyst:]

How has the long term goals that you've set on your Analyst's Day changed in the last 6 months since you laid them out? Do you feel more or less confident you can achieve those revenue and margin targets?

[Robert Fishman:]

Just from a quantitative perspective, our goals -- the numbers that I gave as part of the revenue growth by line of business have not changed. Certainly, the order growth and the backlog information that Bill shared has made us more convinced in terms of achieving those goals. So we're, obviously, comfortable with the good Q4 and the good Q1. And it's a great start in terms of achieving those longer-range goals.

[Operator:]

And we have no further questions at this time.

[William Nuti:]

Well, I want to thank everybody for joining us today. We look forward to updating you on our progress in July. All the best.

[Operator:]

Thank you for participating in today's conference. You may now disconnect.