Good day. And welcome to the Fourth Quarter and Year End Fiscal 2022 Key Tronic Corporation Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Brett Larsen. Please go ahead, sir..

Good afternoon, everyone. I am Brett Larsen, Chief Financial Officer of Key Tronic. I would like to thank everyone for joining us today for our investor conference call. Joining me here in the Spokane Valley headquarters, is Craig Gates, our President and Chief Executive Officer.

As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events and the company’s future financial performance. Please remember that such statements are only predictions, actual events or results may differ materially.

For more information, you may review the risk factors outlined in the documents the company has filed with the SEC, specifically our latest 10-K, quarterly 10-Qs and 8-Ks. Please note on this call, we will discuss historical financial and other statistical information regarding our business and operations.

Some of this information is included in today’s press release and a recorded version of this call will be available on our website. Today, we released our results for the quarter end year ended July 2, 2022.

For the fourth quarter of fiscal year 2022, we reported total revenue of $126.2 million, compared to $132.6 million in the same period of fiscal year 2021. For the full fiscal year of 2022, total revenue was $531.8 million, up 3% from $518.7 million for the fiscal year of 2021.

During fiscal year 2022, we added significant new programs in our backlog for orders reached historic highs. However, constraints in the global supply chain and transportation issues limited production throughout the year. During the fourth quarter of fiscal year 2022, the results were impacted by intermittent parts supply and factory downtime.

Our facilities in Shanghai, China, were closed for most of the fourth quarter due to a government mandated COVID shutdown. While the reopening of our China facility took longer than anticipated, operations have since resumed.

Also impacting the results of the fourth quarter were legal costs related to specifically to the SEC’s review of last year’s whistleblower complaint. These totaled $0.08 per diluted share during the quarter, though we estimate legal cost to decrease in coming periods.

For the fourth quarter of fiscal year 2022, our gross margin was 9.3% and operating margin was 1.8%, compared to a gross margin of 7.8% and an operating margin of 1.1% in the same period of fiscal year 2021.

The increased margins primarily reflect an increase in sales pricing to recoup higher material and labor costs that we incurred throughout the fiscal year. While the fourth quarter was a significant improvement of gross margin, we expect margins to return to historical levels in coming quarters.

For the fourth quarter of fiscal year 2022, net income was $1 million or $0.09 per share, up from $0.2 million or $0.02 per share for the same period of fiscal year 2021. For the full year of fiscal year 2022, net income was $3.4 million or $0.31 per share, compared to $4.3 million or $0.39 per share for fiscal year 2021.

The year-over-year change is predominantly a result of increased legal expenses and higher interest expense. Turning to the balance sheet, we continued to maintain a strong financial position.

Despite supply chain in COVID related production delays throughout fiscal year 2022 and the continued ramp and transfer of new programs, we managed to end the year with total working capital of $176.3 million and a current ratio of 2:1. For year, our inventory increased by $18.4 million or roughly 13%.

We are carefully balancing customer demand and the likelihood of successfully bringing in parts in time for planned production. The state of the worldwide supply chain now requires that we look out much further in the future than in historical periods.

In future quarters, we expect to see our net inventory turns slowly improved to more historical levels.

At the end of the year, trade receivables were up by about $25.6 million from the end of the prior year and our DSOs also increased to about 88 days, up from 76 days, which reflects timing of shipments to customers with extended terms and some delays in payments from customers, who were impacted by pandemic related slowdowns and restarts in their respective markets.

Total capital expenditures were about $6.8 million for fiscal year 2022, down from $10.6 million in the prior year. We are keeping a careful eye on capital expenditures.

However, we planned to continue to invest selectively in our production equipment, SMT equipment and plastic molding capabilities, utilizing leasing facilities, as well as make efficiency improvements to prepare for growth in that capacity.

Despite significant customer backlog, we expect that the ongoing disruptions from the global supply chain will continue to significantly limit production and adversely impact operating efficiencies.

For the first quarter of fiscal year 2023, we expect to report revenues of approximately $125 million to $135 million and earnings of approximately $0.05 per diluted share to $0.10 per diluted share.

We are working closely with our customers, key suppliers and employees to minimize the effects of delays attributable to supply chain constraints, higher cost of labor and component costs, freight and logistics and limited availability of key components.

While our facilities in the U.S., Mexico, China and Vietnam are currently operating, and we are following current health guidelines, uncertainties to the possibility of future temporary closures, customer fluctuations in demand and cost, future supply chain disruptions and other potential factors could significantly impact operations in coming periods.

In summary, we continued to grow our pipeline of new sales prospects and continued to increase our customer’s demand to unprecedented levels for Key Tronic.

Despite the fact the supply chain and the pandemic continued to impact our business throughout fiscal year 2022 and remain risks in future periods, we are encouraged by our prospects for growth and new customer programs for fiscal year 2023 and beyond.

The overall financial health of the company appears strong and we believe that we are increasingly well-positioned to win new EMS programs and to continue to profitably expand our business over the longer term. That’s it from me, Craig..

Okay. Thanks, Brett. Despite facing continuing business challenges throughout the year, including worldwide component shortages, transportation bottlenecks, the global pandemic and government shutdowns, our annual revenue was $531.8 million, the highest in our corporate history. Our order backlog also reached historic highs.

Without the supply chain disruptions, our revenue could have exceeded $700 million. Global logistics problems, the war in Europe and China-U.S. geopolitical tensions continued to drive OEMs to examine their traditional outsourcing strategies.

These customers increasingly realize that they have become overly dependent upon their China based contract manufacturers for not only product, but also for design and logistics services. We predicted these dynamic years ago and built Key Tronic to be the ideal solution for customers as they move to reduce this extreme risk.

As you know, we acquired facilities in Mexico over the last decade at bargain prices while conventionalism drove away flight of manufacturing to China. We now have a campus of over 1.1 million square feet in Juarez, most of which is contiguously located in nine facilities acquired over time.

Moreover, we maintained a detailed and current analysis of Asian locales over the past seven years. When the China-U.S. relationship became too fraught, we were ready to open our Vietnam facility within only eight months.

As we saw many OEMs advocate their design and documentation capabilities to Asia based contract manufacturers, we invested in our design team and its CAD tools. As a result, many of our large and medium sized manufacturing program wins are predicated on Key Tronic’s deep and broad design services.

And once we have completed design and ramped into production, our knowledge of a program-specific design challenges makes that business extremely sticky.

We also invested in vertical integration and manufacturing process knowledge, including a wide range of plastic molding, injection, blow, gas assist multi-shot, as well as PCB assembly, metal forming, painting and coating, complex high volume automated assembly, and the design construction and operation of complicated test equipment.

This expertise sets Key Tronic apart from our competitors of a similar size. As a result, a customer looking to leave their contract manufacturer finds a one stop shop in Key Tronic, which makes the transition to our facilities much less risky than carving together a group of providers each limited to a portion of the value chain.

We understood that our Shanghai plant will remain critical to our success, but in a re-imagined form. Our Shanghai plant has added capabilities and management staff and systems that allow it to serve Chinese customers directly. As this segment grew, Shanghai has replaced the business that we moved to Vietnam.

Meanwhile, our procurement group in Shanghai, which serves the entire corporation, became even more critical as supply issues crippled our competitors without boots on the ground in China. Eight years ago, we acquired three main U.S.

manufacturing sites that as anticipated have benefited greatly from the macro forces driving business back to North America. The fourth quarter of fiscal 2022 saw these U.S. based facilities setting records for revenue and for backlog of new and longstanding businesses. The combination of these U.S.

clients and our expansive design capabilities is proving to be extremely efficient in capturing new business.

The results of our strategic foresight in execution is a wave of new business that gets larger every day, while the pandemic and supply shortages have constricted both our top and bottomline performance, obscuring the amplitude and velocity of that wave of new business, the fact that we actually set a corporate record for revenue in the midst of unprecedented supply issues as an indicator of our growing momentum.

During fiscal 2022, we successfully expanded our customer base and won new programs involving industrial testing equipment, medical diagnostic products, pharmaceutical water treatment, industrial robots, lighting control, disinfection, food production, energy management systems, outdoor recreation, RFID, industrial connectivity, electric mobility, audio products, GPS devices, utility meters, personal safety devices, innovative Internet solutions, and finally, outdoor power equipment.

Once fully ramped, this power equipment program alone could contribute approximately $80 million in annual revenue. Moving into fiscal 2023, we still confront significant uncertainty and disruptions to global supply chains for key components.

At the same time, the pressures on our customer base to reduce our Asian supply concentration remained very powerful. Demand for onshoring of production to North America continues to grow, with no foreseeable end of tariffs intensifying political tensions between China and U.S., and increasing Asian production cost and time to market.

We believe these macroeconomic factors will continue to drive a significant increase to our business and further validate our strategy. While we don’t expect supply chain challenges to be fully resolved in the near-term, we see the potential for significant growth in fiscal 2023 and beyond.

In closing, I want to emphasize that the execution of our strategy was made possible not only by our investments in plants and equipment, but even more so by the skills, local knowledge and talents of our people.

I want to thank our exceptional employees for their dedication and hard work during this challenging time and our shareholders for their continued support. This concludes the formal portion of the presentation. Brett and I will now be pleased to answer your questions..

Thank you, sir. [Operator Instructions] We will take the first question from Bill Dezellem from Tieton Capital. Your line is open. Please go ahead..

Thank you.

Would you please walk through the five new programs that you won this quarter and the size of each of them, please?.

Bill, I am going to do you a favor and I am going to go through all those programs I listed with our current estimates, because some of those have changed since we announced them in various quarters..

All right..

You are ready..

Probably not, but I am going to try..

Okay.

Industrial testing equipment was $10 million, medical diagnostics is $7 million, water treatment is $2 million, industrial robots are $8 million, lighting control $6 million, disinfection is $5 million, food production is $5 million, energy management systems is $4 million, outdoor recreation is $20 million, RFID is $4 million, industrial connectivity is $2 million, electric mobility is $2 million, audio products is $20 million, GPS devices is $10 million, utility meters is $4 million, personal safety devices is $4 million, Internet solutions is $4 million and the power equipment is $80 million..

Thank you very much. So the outdoor equipment that’s $20 million and the audio that you announced this quarter that’s $20 million. Would you please talk to those, just given the magnitude and I know you talked about the power equipment of $80 million in the past, so I will skip that one..

So we got a mix up somewhere, you get the outdoor power equipment is $80 million and we had outdoor recreation that was $20 million and audio products that are $20 million. So which….

Outdoor rec is -- yeah.

Outdoor rec, I am sorry, wrong outdoors and then the audio, please?.

And so what’s the question on those two?.

Yeah.

Would you just discuss each of those, just given their size and how important they could be to the company, a little bit more about them whatever you can share and was there a unique characteristic of why you want those pieces of business that also be helpful?.

Both of them share, the fact that their company was trying to move out of China into the states. One of them was accelerated by the fact that they are -- they a final assembly factory in Juarez down the street from us. Neither of these two had anything to do with our actual design services.

Both of them had to do with our design for manufacturability, analysis capabilities. Both of them are large, established OEM’s that have been around for decades..

Given that last comment, are these both programs that if you are successful with that they would give you additional business or the opportunity for additional business that could be equally as or larger?.

Yes. In fact the outdoor recreation one has grown since we first announced it..

Great. Congratulations..

Thanks..

And Shanghai, but actually, is there anything else with any of those wins this year that you would like to specially call out?.

No..

Let’s jump to Shanghai then please.

How much did the closure of that facility this quarter? How much revenue did that cost you?.

It was about $7 million or $8 million..

And that facility was fully open, starting when again?.

Mid-September..

September..

Sorry, bad luck..

Yeah..

Mid-June,.

There you go..

Let’s try again..

Yeah. Mid-June..

Thanks, Bill..

All right. I am actually going to Craig in this case. So thank you for asking the question. I was a little puzzled myself. Maybe this call would do a lot better if you just ask the questions..

Well, I am already thinking ahead, Bill. I am already thinking ahead..

Okay. Hopefully, not as I am closing again and then reopening in mid-September..

So it was mid-June. So we got about two weeks and two and a half weeks of production from our Shanghai facility..

Okay. No. That’s helpful.

And they are now back up and fully operational and ramp, is that -- are we understanding that correctly?.

Yeah..

Yeah. That is correct..

Okay. Great. Thank you. And then I believe in the opening remarks, Craig, you had said that you -- that had the supply chain difficulties not been in place that you could have shipped a $700 million of business and by my math, that’s $175 million per quarter.

And I don’t remember at any point in the last year a reference to being -- to having demand up at that level.

So I guess I have two questions tied to that, was there a level of conservatism that was employed before or does this imply that demand has accelerated as the year has progressed? And so this really isn’t linear at $175 million, it would be in a more like that $150 million early on and the year and has moved up closer to $200 million per quarter now that as we sit today?.

I can’t recall which quarters were how much, Bill, as we went back and looked over it all. We just looked at unfulfilled possibilities by customer. That’s how we came up….

Okay..

… with this number, so I don’t have it by months or by quarter. I’d say it’s mildly accelerating..

And mildly accelerating?.

Yeah..

All right. No. That’s helpful. I appreciate it and I will step back in and let others ask..

Great. Thank you..

We will take the next question from Sheldon Grodsky from Grodsky Associates. Your line is open. Please go ahead..

Good afternoon, everyone. Unfortunately, it feels a little bit like Groundhog Day with every quarter seeming to have the same issues. By the way, let me address a couple of things.

First, you mentioned what the SEC investigation cost you in the fourth quarter, and you mentioned that, you expected the expenses from the SEC investigation to diminish, do we have a number for what is the cost for the whole year?.

Yeah..

What is that?.

Sheldon, that roughly be in excess of $0.25..

Well, that’s lot. And that number is expected to be smaller, if I interpret everything I have heard so far..

Based on what we know today, yeah..

Okay. Now, you said something about Shanghai becoming more important than maybe Vietnam becoming less important, did I misinterpret what I heard there or is this….

Yeah. You misinterpret that. You misinterpreted that..

Okay..

So what we were trying to say is that, Shanghai has not become less important but they are not at lame duck facility, their role has changed within the company and their market has changed.

So they were mainly in existence to provide outsourcing for European and North American companies and the products they built mainly came back to North America and Europe. Today they are mainly providing services to companies that are in Asia and some small portion in Europe. And most of the products they build are staying within Asia and Europe.

And their role in procuring parts for the rest of the company has remained strong and in a few ways has increased in breadth as getting parts became more and more difficult over the last two years..

And what did you say about Vietnam?.

Vietnam continues to be one of the places people work as we are trying to figure out a way to get out of China and reduce their risk, and yeah, shift into other Asian companies and countries, I mean, into Europe.

So, Vietnam’s growth in particular was really throttled by the virus and the government’s reaction to the virus and that they clamped down really hard on any visitors and that is just really starting to loosen in the last couple of months.

So even though we have added business into Vietnam, it could have been quite a bit more of people have been allowed to travel and will see the facility..

Okay. I guess I will let that be it for now..

Thanks..

Okay..

The next question is from George Melas from MKH Management. Your line is open. Please go ahead..

Okay. Great. Thanks. Hi, Craig. Hi Brett..

Hey George..

Hi, George..

Hi. Can you give us some number on the gross margin? It went up by 100 basis points sequentially and maybe try to help us understand why and also maybe, more importantly, you said, you need to come back to historical levels..

Yeah..

So what do you mean by historical levels then and why is it coming back then?.

So, George, I think, in this quarter specifically, there was some recouping of sales price increases of costs that had incurred in previous quarters. So the 9.3% while significantly higher than where we have been running of close to 8.3% or 8.5%, we don’t anticipate that to repeat prospectively. We expect to be back to around 8.5% in this quarter.

That’s not where we want to end up. We want to continue to grow that and with some additional volume, we hope to do that. But this was a bit better quarter than what we expect to do prospectively..

Okay.

Just to understand, it means that you actually were able to get some payments for shipment that were in prior quarter, some compensation for that, let’s say?.

That is correct. That is correct..

Okay. Okay.

And was that from a few customers or was it pretty broad?.

I’d say it was from a handful of customers..

Okay. And I don’t know to what extent you can elaborate on that, but why should customers may not other….

I would say….

… special circumstances?.

Yeah. There were some special circumstances involved with these where the pricing negotiations took longer than what we had anticipated, but we were able to recoup retroactively for some shipments that had been made into earlier quarters..

Okay. Great. That help explains it. Okay. Great.

Can you -- Brett, can you give us the exact amount of the legal costs in the quarter and in the year, but in dollar terms, that flows to the OpEx?.

Yeah. I am just going to give you brief, rough estimates of approximately $1 million in Q4, just over $1 million in Q4 and in excess of close to $3.5 million in -- for the year..

Okay.

And is there a particular reason why Q4 was higher, I was under the expectation that legal costs had peaked and they were coming down, but that’s not the case?.

Well, they are tough to forecast. There is -- there was more activity that occurred that was -- that occurred during the fourth quarter based on where we are at today and what we have gone through. Our expectation is those legal fees should reduce over time..

Okay. Okay, Great.

And then, if I look at the OpEx, even if I normalize for the legal costs, they were up significantly, is there a particular reason for that?.

There were some -- as you know, there is over $1 million in legal costs going through the SG&A..

Yeah. But then if you….

Yeah..

… take that out, they were up like almost 10% sequentially..

There also were some year-end bonuses that were -- that occurred during the quarter..

Okay..

I mean if you look at -- if you look year-to-year, predominantly the increase in operating expenses by far were the increased legal fees..

Yeah. Yeah. Okay. Great. And maybe a question for Craig, Craig, did you guys shed a lot of business in fiscal 2022. I mean you were in a situation where you have grown both the year, you were able to sort of prune some customers that are either unprofitable or difficult to deal with.

Can you help us understand if you sort of went through sort of a pruning process, and if so, how much was that?.

I would say that it’s been less of pruning process and it’s been more of an equalization of the business relationship between those customers and us that, perhaps, were acting exactly the way we would like them to act. So, as Brett talked about, we have raised prices. We have implemented terms for payments.

We have implemented inventory investments by the customers and their own inventory. I’d say we have done more of that and we have actually pruning customers and moving about.

So the majority of our customers, I would say, had been on our problem customer list, are no longer on the list, not because we, so to speak, fired them, but because they came to value the relationship correctly and are now acting the right way..

Okay. That’s sounds like it was a lot of work that seems like you had some good success there..

Yeah. I think so..

Okay. Great., Thanks. I will go back in the queue..

Okay..

Thanks, George..

Thanks, George..

We take the follow-up question from Bill Dezellem. Your line is open. Please go ahead..

Thank you.

A couple of additional questions, first of all, relative to the supply chain, do you have a sense that it’s improving at all or worsening for that matter?.

Our belief right now is that it has slightly improved. So there are -- I see that we just couldn’t get about how much money our customer was willing to spend that we have been able to get in the last couple of months. Suppliers that wouldn’t even talk to us, will now answer the phone and have a discussion.

And in general, just seems to be from various bits and drabs of data that it is getting better. I think it’s as much because our OEMs, our customers and everybody else’s have come to grips with the fact that they need to forecast in 24 months if they are going to get parts. I don’t think any new capacity has come online.

There has been some, I guess, overall, softening in the market, although we haven’t really seen any overall softening in our demand from our longstanding customers.

In broad sense, we have seen demand move around from the country we are originally building parts for us now dropping in demand and the country that originally didn’t have a lot of demand has increased. But right now we don’t see in our order book the signs of recession that we all to a certain degree expect is coming..

That’s helpful. And then, you referenced, I think, again in the opening remarks, relative to the U.S. operations and those plants. And I think, in prior call, you had talked about a significant amount of new business moving into the U.S.

facilities, would you please talk around what’s happening that’s leading to that big ramp up? What the magnitude of the ramp up is again. I think, you mentioned it before, but remind us if you would please.

And given what I would think that would lead to some pretty significant incremental margins, just given that you already have decent cost absorption there, what the implications could be to the bottomline?.

Okay. The drivers behind that are as we stated, people trying to move out of China, people who probably shouldn’t have been in China in the first place, because they don’t have the big $20 million, $30 million, $40 million, $50 million programs that are going into Juarez.

Some new products that are being developed that are benefiting from our design capabilities that people used to just outsource to their CM in China, but a lot of products that already existed that are coming back here. It’s -- those three plants ran around $115 million to $120 million for the last four years or so.

They could be as high as $160 million, $170 million in the next 12 months, if everything comes the past the way it should and that does make a nice bump in profit for that group of plants..

And Craig, you said $120 million, $125 million going up to -- did you say $170 million?.

Yeah. I said $115 million to $120 million, maybe going up to size $170 million..

So, really the way to think about this is the incremental margin on $50 million to $55 million and is there really much in terms of incremental SG&A or is it truly an incremental gross margin that we are going to be looking at there?.

The problem is that, I mean, it’s wonderful, but it’s not the promise land, because the cost of employees in the states has skyrocketed too. So both getting people to work and paying them enough to keep them is, as you know, a problem in the states..

Right..

So it’s not all going to be incremental margin that drops to the bottomline..

Great reminder. Thank you and congratulations on having those plants see additional revenue.

Are you going to be needing CapEx at some point here to expand those facilities or do you have the capacity to take on that business already?.

For the vast majority of that answer, we do not need more capital. There may be an SMT line here or there, but it’s not like we need to go out and find another facility..

We will be adding some shifts, but to Craig’s point, for large part of it, we have got equipment capacity..

I don’t know if you remember that one of our facilities was a state-owned facility that we lease for, I think, it’s a dollar a year or something like that..

$60 -- $60 a year..

That was almost three quarters empty and that’s getting nicely filled up now..

Congratulations and thank you both for the perspective..

Yeah..

[Operator Instructions] We have Mr. George Melas on the line. Your line is open..

Hi. I have a quick question regarding -- I have a quick question about the programs, Craig, that you mentioned for the year.

And my question is, how small do you take a program and if you have a $2 million program, it adds complexity, because you need to add complexity, is it worth -- I am sure it is, because you doing it, but help us understand of what’s the value of taking $2 million program or $10 million program or $20 million or $80 million, I mean you have lots of small and you have a few elephants, how this -- how should one think about that?.

Well. We wouldn’t do it if we didn’t take big fence, so it kind of answered your question there..

Yeah..

And the annual revenue is only one metric. So the smaller programs tend to be higher margin. Typically a smaller is something that we have gone after, because we believe there is some larger programs after it. Typically a smaller program is in the states, where the complexity is more easily digested than it is offshore.

And typically a smaller program is….

Less complex..

Yes. It’s simpler to run than a big one. So there’s a whole bunch of metrics that we consider when we decide what we are doing. Every Monday at 1 o’clock, we go through all of the pieces of business in our quote funnel, in our sales funnel and we decide which ones to keep and which ones that throw out.

I will tell you it has been a hell a lot more fun in the last year when you are looking at a full court quote funnel and you can be selective, then 10 years ago when you were looking at some pretty bear around and had to pick up some rocks, I did not want to know what’s to do with that..

Right. Right. Okay..

So I don’t know if that answers the questions..

Sort of. Yeah..

Okay. Then ask me some more.

Why don’t you get?.

My question is always going to be about what is the margin potential of the business?.

What is margin potential of the business?.

Yeah..

I think if we run even close to what we could, so if we are running in the $600 million range next year for revenue, our margins should be $900 million plus..

Okay. And how much goes down to the EBIT line….

I would explain to you. I think you are going to have operating expenses as close to 6% at that much volume, maybe 6.5%..

Yeah..

Interest unfortunately is higher, that’s pre -- that’s outside your EBITDA..

Yeah. And then maybe just a last one for me, on the working capital, Brett, you talked about $176 million or roughly $180 million.

Would do you expect to finish fiscal 2023 or what you know [Technical Difficulty] you expect to generate some cash from working capital this year?.

Well, we hope to. It’s a long ways out and it’s quite a bit of both….

Okay..

Quite a bit of growth that’s anticipated that will require some working capital. But as we have mentioned, we have got too much inventory right now..

Right. Right.

Do you think you could balance and you have flat working capital with increasing AR and declining inventory?.

Certainly we are trying to pull off..

Yeah..

If we can get the supply chain to be more predictable, so we are about ordering $20 million more parts than what we actually end up….

Yeah..

… building in a given quarter, it won’t be very hard to get inventory back down again. But if it continues to be really unpredictable and we have to go back and fight with our every single customer, every time we have ordered for their forecast and we can’t get one part then it’s going to be a rough go to keep those to an offsetting situation..

Okay. Great. That’s good to here. Thanks..

Thanks. Right..

It appears that there is no further question at this time. Mr. Craig, I would like to turn the conference back to you for any additional or closing remarks..

Okay. Thanks for joining us today. We look forward to talking with you next quarter..

Thanks..

This concludes today’s call. You may now disconnect..