Emergent BioSolutions Inc (EBS) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2008 Emergent BioSolutions Inc. Earnings Conference Call. My name is Karen and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

I would now like to turn the presentation --

Karen?

Yes?

This is Bob Burrows. You're breaking up significantly. Can you hear us appropriately, please?

Yes.

I'm not sure why you're breaking up.

Okay, but you're not breaking up into the call.

All right. Are we going to be able to hear the Q&A, however? Because while you were talking you were breaking up significantly.

Okay.

Now I can hear you. Keep talking. Just talk to me for a while.

Okay. (OPERATOR INSTRUCTIONS)

There you go. Okay. Please proceed. I apologize.

And as a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Robert Burrows. Please proceed.

Thank you, Karen. Good morning, ladies and gentlemen. Again, my apologies for the earlier comments. Thank you for joining us today as we discuss Emergent BioSolutions financial results for the first quarter of 2008.

As is customary, our call today is open to all participants. In addition, the call is being electronically recorded and is copywrited by Emergent BioSolutions.

Joining me on the call this morning is Fuad El-Hibri, our chairman and chief executive officer, and Don Elsey, our chief financial officer. Additionally, other members of senior management will be present on the call for purposes of Q&A. They include Dan Abdun-Nabi, president and chief operating officer of the Company, Dr. Jim Jackson, chief scientific officer, and Dr. Mike Langford, president of our biodefense product development group.

The agenda for today's call will be, following my brief introductions Fuad will provide comments on corporate accomplishments in 1Q 2008 and key objectives for the remainder of 2008. Don will then discuss in detail the 1Q 2008 financials and comment on financial guidance for 2008. We will finish the call with the customary Q&A session.

Please note that any statements about the Company's prospects or future expectations are forward-looking statements. As you know, forward-looking statements involve substantial risks and uncertainties and actual results may differ materially from expectations. Please refer to the press release issued earlier today and, importantly, to our filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ.

Also, Emergent BioSolutions assumes no obligation to update the information in today's press release or as presented on this call except as may be required by applicable laws or regulations. Today's press release may be found on our website at www.emergentbiosolutions.com under Investors/Press Releases. And with that, I would now like to turn the call over to Fuad El-Hibri, our chairman and CEO. Fuad?

Thank you, Bob. Good morning, everyone, and thank you for joining us today.

As you know, this morning we reported strong financial results for the first quarter of 2008. Our financial performance during the quarter reflects our continued strength of generating consistent cash flow through sales of BioThrax. We then reinvest that cash into the development of pipeline of vaccines and therapeutics targeting infectious diseases. As we continue to build Emergent into a leading force in the biopharmaceutical market, we believe this strategy will continue to be effective in building long term value.

During the first quarter of 2008 we continued to achieve both financial and operational success. Operationally, we continued to sell more of our licensed product, BioThrax, and we accomplished key product development milestones. We advanced our manufacturing expansion program and we achieved various business development objectives. As we look toward the remainder of 2008 and beyond, I'm confident we will continue to achieve our financial, operational and corporate objectives.

Let me begin with a brief word on our financial accomplishments during the first quarter of 2008. We recorded significant year-over-year growth in revenue with total revenues up 62% over last year to almost $43 million. We also achieved a net income of around $7 million. A more detailed discussion of our financial results for the period will be provided by Don in a moment.

As we have said before, our approach is to reinvest internally generated cash flow into our product pipeline of vaccines and therapeutics that address significant unmet or underserved medical need. To that end, we invested $11.5 million in our development program while finishing the first quarter with more than $90 million in cash. This cash balance positions us to pursue the acquisition of a late stage product candidate that broadens and deepens our commercial product portfolio. In parallel, we have also expanded our biodefense pipeline through two recent acquisitions. I will talk in greater detail about each of these transactions in a few moments.

Let me turn now to our operational accomplishments, specifically marketing and sales, product development, manufacturing and business development. I will begin with our marketing and sales accomplishments. We continue to deliver BioThrax to HHS for inclusion in the Strategic National Stockpile under our current multiyear contract. As a reminder, this is a $448 million contract that includes the procurement of 18.75 million doses of BioThrax over a three-year period.

Internationally, we completed another meaningful sale of BioThrax to an allied foreign government. We also continued to develop growing interest from a number of other countries. One example is Malaysia, where we recently established a joint venture to supply BioThrax and other medical and biodefense products and related services to the Malaysian government. And we continue to pursue licensure of BioThrax in select foreign markets, which we believe will facilitate sales to governments in these markets for both military and civilian stockpiling purposes.

Moving on, I will now comment on certain product development [inaudible - microphone inaccessible]. During the first quarter of 2008 we successfully advanced our pipeline candidates. Specifically, with respect to our anthrax IG therapeutic candidate, we continue to conduct the necessary non-clinical trials in accordance with the FDA animal rule while preparing for the initiation of the pivotal human trial, which we expect to initiate later this year. Based on an existing procurement contract with another company, we estimate the current market opportunity for this anthrax therapeutic alone to be up to $750 million.

For the single dose oral typhoid vaccine, we focused on preparations for initiation of a Phase IIb trial in the United States following a successful Phase II trial in Vietnam which was completed last year. Importantly, this product will be the first -- the world's first single dose drinkable typhoid vaccine, which would provide significant advantages over the two current U.S. licensed typhoid vaccines.

In terms of market opportunity, we see significant potential market growth in providing differentiated product for typhoid. Analysts currently estimate the market to be between $100 million and $120 million annual, with growth potential to nearly $200 million within five years.

However, as our product candidate would be a single dose oral product with potential effectiveness in young children, among other attributes, we're confident our approach could potentially expand the market not only in the U.S. and EU, but more importantly within endemic regions and specifically the growing affluent populations in India and China. These population segments are rapidly increasing in both India and China and even a small percentage [uptick] from these groups would equate to a substantial additional market opportunity.

And with respect to our current Phase II clinical trial for our hepatitis B therapeutic vaccine, we have completed recruitment for the first [cohort].

Let me now turn to our manufacturing accomplishments for the quarter. We're currently performing process validation at our new state-of-the-art manufacturing facility in Lansing, as planned. Specifically, we're in the process of working toward manufacturing our three consistency lots, which we expect to be completed by the end of 2008.

Remember this facility is containable and has been designed and constructed to enable us to manufacture on a large scale basis BioThrax as well as other vaccine products, subject to compliance with appropriate changeover procedures. I'm pleased to report that this new facility is coming in within budget.

We also recently commissioned a product plant on our Lansing campus to support the manufacturing of clinical material. The expansion to the pilot plant accommodates different manufacturing [processes also].

Lastly, let me review key accomplishments with respect to our business development activities. During the quarter we continued to develop partnerships with government and non-government entities in strategic growth markets. Specifically, as I mentioned before, we formed a joint venture in Malaysia with Ninebio to supply BioThrax and other medical (inaudible - microphone inaccessible) and related services to the government of Malaysia as well as potentially other countries within Asia.

Additionally and consistent with our strategic goals, on March 6th we announced the acquisition of an anthrax monoclonal antibody. This acquisition expands our anthrax franchise and enables us to develop an additional therapeutic candidate in parallel to our anthrax immune globulin, or AIG therapeutic. Our AIG candidate continues to be well positioned for a potential procurement contract as early as next year.

And more recently, on May 5th, we announced the acquisition of an advanced recombinant anthrax vaccine candidate, rPA 102 from VaxGen. More details on this latest acquisition in a moment. But it is important here to remind everyone that with this acquisition we're further rounding out our anthrax franchise. We now have an FDA licensed anthrax vaccine, BioThrax, the next general rPA anthrax vaccine candidate, and two anthrax therapeutic candidates based on both monoclonal [and polyclonal antibodies].

With our multi-product offering for anthrax, we're well positioned to provide both the U.S. government and other governments internationally with a full complement of medical countermeasures to protect both military and civilian populations against the threat of anthrax.

Now let me update you on our outlook for 2008. I will start with our marketing and sales objectives for this year. Our primary objective is continuous delivery of doses of BioThrax to the SNS under our current $448 million three-year contract with HHS. We're looking towards expanding sales of BioThrax to the U.S. government by satisfying the Department of Defense continuous requirement under its Anthrax Vaccine Immunization Program.

We're also expanding the reach of BioThrax to other governments through the appointment of additional marketing agents and distribution partners in key foreign markets. And with respect to our typhoid candidate, we're working to establish a sales and marketing plan for product launch and commercial [sales growth].

More specifically, we anticipate a two-pronged approach to addressing this market, with our primary target market being travelers in the U.S. We will focus on leading U.S. travel [clinics in] major metropolitan areas and tend to focus on the top performing travel clinic in these major markets using a small dedicated sales force.

In the EU we intend to employ an approach that is more country specific, acknowledging the fact that such travel vaccines tend to be administered by clinicians, in which case we will develop marketing and distribution partnerships with initial entrances in the largest EU countries.

Next let me update you on the 2008 clinical development objectives for our product candidates. With respect to our AIG therapeutic candidate, we plan to initiate the pivotal human trial and substantially advance our non-clinical trials during the year. We expect the pivotal human trial to be completed during 2009. As we move through the various development milestones, this product should be well positioned to receive a sizeable procurement contract from HHS as early as 2009.

With respect to our oral typhoid vaccine candidate, we plan to initiate a Phase IIb study in the U.S., which is building on the successful Phase II trial in Vietnam completed last year. In addition, in 2009 we plan to start surveillance for a Phase III trial in India as well as initiating a Phase III trial in the U.S. and EU.

And finally, with respect to our hepatitis B therapeutic vaccine, we expect to receive preliminary safety and immunogenicity data from the ongoing Phase II study at the end of 2008 or early 2009. In addition, based upon ongoing challenges that we have encountered with respect to recruitment of patients for this trial, we're evaluating various approaches to improve subject recruitment, including possibly expanding the Phase II program to additional sites around the world.

Now let me briefly update the status of our manufacturing outlook for 2008. As mentioned earlier, we expect to complete process validation, including the manufacture [of three consistency lots] of BioThrax in our new large scale manufacturing facility.

If FDA agrees with our current plans on demonstrating bioequivalence to product characterization, then we may be able to submit the BLA supplement to our license in 2009. However, should the FDA require a human bridging trial to demonstrate bioequivalence in addition to product characterization, then a filing of a BLA supplement may not occur until 2010 at the earliest.

And we plan to continue to improve our manufacturing efficiency in our existing facility. Our output target for 2008 is around eight million doses, up from approximately seven million doses produced in 2007.

Lastly, let me revisit our business development objectives in 2008. We plan to acquire a late stage commercial product candidate which would augment our advanced pipeline (inaudible - microphone inaccessible) and is consistent with our corporate growth strategy. In parallel to our efforts to expand our commercial pipeline, we also have pursued selective opportunities to further bolster our biodefense portfolio.

As I discussed earlier, on May 5th we acquired the recombinant anthrax vaccine candidate rPA 102 from VaxGen. Recent improvements to the rPA vaccine specifically related to stability [inaudible - microphone inaccessible] well positioned to be a leading candidate for an award under an RFP recently issued by HHS. Vaccine candidate has completed one Phase II clinical study.

With our proven track record of delivering critical biodefense countermeasures for the U.S. government and given HHS's stated commitment to procure up to 25 million doses of a recombinant anthrax vaccine for the SNS, we view this acquisition as a strategic move for us. rPA 102 has the potential to become a complementary product to BioThrax, the world's only FDA licensed vaccine.

We believe that the U.S. government will buy BioThrax and a licensed rPA vaccine, when available, for the SNS over the long term. In short, we felt this was the right opportunity for our company at the right time. In addition, we're pleased to provide the U.S. government with the important option to select advanced rPA anthrax vaccine candidate from a domestic manufacturer. As a premier domestic biodefense supplier, this was a natural fit for us.

Lastly, we're also devoting time and attention during 2008 to securing additional NGO and government grant funding to advance multiple products in our pipeline. This of course is in line with our approach to mitigate development costs through non-dilutive arrangement with third parties, including NGOs and government related entities worldwide.

In conclusion, we have managed to build on our success from 2007 and achieved a great deal in the first quarter of 2008. Such forward momentum is what we continually work towards and I remain confident that we continue on a path to achieving our goals for 2008 and beyond. I look forward to keeping you all apprised of the progress we make throughout the remainder of the year.

That concludes my prepared comments. Don will provide greater detail on our financial results for the first quarter. Don?

Thank you, Fuad. Good morning, everyone.

As Fuad mentioned, we released our first quarter 2008 financial results this morning prior to the opening of the markets. The press release is available on our website. Later today we will be filing our quarterly report on Form 10-Q with the SEC. The 10-Q will also be available on our website and on the SEC's website once it has been filed.

As Fuad said, our financial performance during the first quarter of 2008 was very strong and we were very pleased with the results. During the quarter we continued to execute against our $448 million multiyear contract with HHS, delivering doses of our licensed product, BioThrax, for inclusion in the SNS. We continued to invest in the development of our product pipeline and the advancement of our large scale manufacturing capability in Lansing.

At the same time, we rigorously managed our spending and manufacturing development and in general and administrative areas and pursued efficiencies wherever possible. This enabled year-over-year improvements in almost all key financial metrics.

Now I would like to give you a summary of our financial results for the first quarter of 2008. And I'll start with product revenues. First quarter 2008 product sales increased by $16.1 million, or 63%, to $41.5 million, up from $25.4 million for the comparable period of 2007. The increase in revenue was driven by a 68% increase in the number of doses of BioThrax delivered. Product sales for Q1 2008 consisted primarily of BioThrax sales at HHS of $41.1 million.

Turning to contracts and grant revenues, first quarter 2008 contract and grant revenues increased by $200,000, or 21%, to $1.2 million, up from $1 million for the comparable period of 2007. Contracts and grant revenues for Q1 2008 consisted of $800,000 from Sanofi Pasteur collaboration related to the recognition of deferred revenue associated with the upfront payment received in 2006 as well as development service revenue, and $400,000 from the NIH related primarily to our AIG program.

Moving on to the cost of product revenues and gross margins, for the first quarter of 2008 cost of product sales increased by $2.5 million, or 45%, to $8 million, up from $5.5 million for the comparable period of 2007. The increased cost of goods sold was driven by the increase in the number of doses of BioThrax delivered, offset by decreased costs associated with improved production yields. Gross profit margin on product sales in the first quarter of 2008 improved to 81% versus 78% in the first quarter of 2007.

Turning now to expenses, research and development expense. For the first quarter of 2008, research and development expenses decreased by $4.1 million, or 26%, to $11.5 million, down from $15.6 million for the comparable period of 2007. This decrease reflects lower outside contract service costs related primarily to the collection and fractionation costs for our AIG program, as this product is moving to the final stage of product development.

In the area of SG&A expense for the first quarter of 2008, SG&A expense increased by $900,000, or 8%, to $12.1 million from $11.2 million for the comparable period of 2007. This increase was driven by an increase in staffing and in legal and other professional service spending to support the requirements of being a public company and supporting our overall growth as a company.

And to finish up on the P&L, we turn to net income. For the first quarter 2008, our reported net income was a profit of $7 million, or $0.24 per basic and diluted share. This is a significant improvement from our net loss of $2.7 million, or $0.10 per diluted share, for the first quarter of 2007. In addition, out outstanding shares at the end of the first quarter 2008 was 29,750,000, which is an increase of nearly 7% over the share count for the comparable period of 2007.

Looking at key elements of the balance sheet, our cash and cash equivalents at March 31st, 2008 were $92.7 million compared to $105.7 million at December 31st, 2007. The net decrease in cash and cash equivalents resulted primarily from net cash used in operating activities and investing activities of $4.8 million and $10.4 million respectively, offset by net cash provided by financing activities of $2.3 million.

Finally, we would like to address our previously published 2008 financial guidance. For 2008 we are reaffirming our expectations for full year total revenues of between $180 million and $195 million and net income in excess of $20 million. We anticipate that our current cash position, in addition to internally generated cash flows, will allow us not only to invest in our current pipeline of product candidates, but will also enable us to continue pursuing our strategic objective of acquiring additional late stage vaccine and therapeutic candidates that address critical unmet and underserved medical needs.

That concludes my prepared comments and I will now turn the call to the operator so that we can begin the question and answer portion of the call.

(OPERATOR INSTRUCTIONS). And your first question comes from the line of Richard Smith with JPMorgan. Please proceed.

Yes, good morning, everyone.

Good morning.

Morning, Richard.

Morning. Just a quick question. So, with respect to -- well, a. how many doses were delivered to HHS in the first quarter? Can you provide the number?

Sorry, you were breaking up a bit. Could you repeat your question, please, Richard?

How many doses were delivered to HHS in the first quarter?

We delivered approximately 1.8 million doses, Richard. Normally we don't give specific dose information delivery to HHS but it's in that ballpark.

Okay, thank you. And with respect to the acquisition of the rPA 102, could you just provide some details of how it compares to the pharmacy [inaudible - technical difficulties] rPA vaccine that is in development?

Mike, maybe you can kind of address how --

Sure. Some of the differences, I guess that's maybe what we want to focus on, are the expression systems that are used. So the expression system for the product that we acquired, rPA 102, is a bacillus anthracis organism, [which is] the same as we used to produce our current licensed vaccine.

We see some of the advantages of that of the way that it expresses the protein. So it's expressed a full length protein in a soluble form versus the [PharmAthene and Avecia] construct, which is expressed in E.coli and is expressed in inclusion bodies which require breaking up of the cell then further purification can result in truncated proteins. So we see that as a potentially more effective vaccine in terms of the fact that is has all of the [inaudible] of the wild type [DA]. So we think that's one of the significant advantages.

We also think that [inaudible] prior to our acquisition of it has substantially increased the stability of this product. We know that there are stability issues with rPA in general from our previous work with this. Although I can't speak directly to the PharmAthene product, we do believe we probably have a superior product in terms of stability. So we have the expertise for production. We believe the product produced is superior in terms of other recombinant products and we believe the stability that we're going to see is going to be superior to other products.

With respect to the RFP that is out there for second generation, are there any attributes that you still need to work on to fulfill that RFP requirement?

We believe that we're well positioned to submit a strong bid under the existing RFP, Richard.

All right, thank you.

And your next question comes from the line of Eric Schmidt with Cowen & Co. Please proceed.

Good morning. Thanks for all the updates. On the DOD side, Fuad, I think you mentioned that the Department of Justice would require additional supply of BioThrax in 2008 if it were to continue with its ongoing program. Can you talk a little bit more in detail about your updated discussions with them, when a contract might occur, whether that contract would indeed be through HHS and if you would kind of size what would be required for the continued program?

Well, I can tell you that we have been informed that DOD and HHS have come to an agreement with respect to fulfilling the DOD requirements. And that HHS is currently evaluating what -- to what extent that will result in a modification to the existing contract because the intent was and still is that every dose requirement by DOD would translate into additional purchase by HHS for BioThrax.

Again, government -- the government procurement process takes time. We still are confident that this year we will receive a modification to accommodate DOD's requirement. As to the amount, I can only point back to history where over the last 10 years the requirement was between one and a half million to two million doses per year. And there's nothing looking into the future that would suggest that the requirement would change in any major way.

And you still think that those doses would be in excess of the 18.75?

Yes.

Okay. And since you're in the mood, I guess, to give out dose information on this call, can you tell us how many remaining doses are under the 18.75 million contract?

Well, I can help you with that, Eric. The 18.75 million doses are almost evenly planned to be delivered. We delivered around six million in '07. We plan to deliver around six million this year and then around six million next year.

Okay.

Does that help a bit?

Very much. Next question is on your production capacity. You said you were now up to about eight million doses in '08 versus maybe seven or so million last year. Can you talk about what exactly happened there and whether you're confident you'll use all that capacity, sell out that capacity?

Well, if you just do the math, we're looking at selling around six million doses to HHS and then DOD will come in at about one and a half to two million doses, we get very close to committing our full output for '08. But our international efforts are getting even further traction. As I mentioned before, we did have (inaudible - microphone inaccessible) another sale and we continue to sell additional doses over the next three quarters of this year. So, yes, increasing the capacity from seven to eight million translates into potentially having a million doses of additional sales (inaudible - microphone inaccessible).

And what drove the capacity expansion of this?

You know we do some continuous minor -- and I say minor simply because I think we've already dealt with the low-hanging fruit in terms of optimizing the manufacturing process given the [current] (inaudible - microphone inaccessible) process. We're tweaking the last bit and plus we're also adding additional shipments so that we utilize the facility 24/7.

Okay. And last question. In your preliminary comments you mentioned that your cash on hand and your cash flow allows you to pursue late stage product acquisitions to broaden or deepen your portfolio. Could you help us understand a little bit more what you're looking for there?

Well, we're looking for late stage vaccine or therapeutic and biologics of course. And late stage would mean either Phase II or Phase III product. It may be in infectious diseases because right now that's where we're focused, but it could be outside infectious disease. And all I can tell you is that that's one of our main strategic objectives. We're making progress and it would give me great pleasure to announce a deal once it has -- when we reach that point.

What's your willingness to take on earnings dilution associated with such a transaction?

It really depends on the size of the transaction, Eric, because obviously we want to maintain a healthy cash buffer. We have some cash, we believe, that we can use towards an acquisition for either a company or a product. To the extent that there is a requirement for further consideration, certainly a dilution [could become] an option.

Okay, great. Thanks so much.

And your next question comes from the line of Daniel Mallin with WBB Securities. Please proceed.

Yes, hi, guys. Congratulations on the quarter, as well the interesting strategic acquisitions.

My question is having to do with the number of doses or the total sales. More specifically, I know that this most recent contract signed with HHS has an order smoothing (inaudible) where in previous years the quarter-over-quarter sales through HHS was very lumpy, mostly loaded in the backend of the year. The delivery schedule [on this contract] is going to be more consistent quarter-over-quarter. Not knowing the details of that, is there any insight in terms of the total revenue relative to the expected revenue to suggest that this was maybe more than expected or not as much as expected relative to that contract?

Dan, as you know, this HHS contract was the first three-year contract and that was a very positive development. And yes, it does tend to give us an opportunity to smoothen out the deliveries year-over-year. And as we said previously that our quarter to quarter deliveries were very -- would differ considerably from one quarter to another. That may not -- we're now able to smoothen that a bit.

But also keep in mind, please, that the government only takes delivery every so often and sometimes there is a delay, not caused by us but by them, that may again ship some delivery from one quarter to another. So I wouldn't get too excited about the smoothing effect. It will have some smoothing. Hopefully it's not as lumpy as it has been in our previous years. But it still may -- we may see some variability from quarter to quarter.

So interpreted slightly differently, the real story is in the full year sales, not in the quarter-over-quarter?

Yes, that's absolutely correct, Dan. And this is what I keep repeating to our investors is that it's very important to understand this is an annual (inaudible - microphone inaccessible) and when you work with government contracting and biodefense and we look at it year-over-year and see how (inaudible - microphone inaccessible). We try to smooth it out quarterly performance best we can, but it's a year-over-year story.

And lastly, on the acquisition of the rPA candidate, I know there's an existing RFP out there for this next stage. I don't know what the submission deadline is, but considering the, call it rocky history, of that particular program upgrade, are you guys confident that you'll be able to put together a strong submission for the outstanding RFP (inaudible - microphone inaccessible)?

Yes, let me answer your question very clearly. Absolutely. We feel that this RPA candidate with the stability issues apparently resolved to our satisfaction, we believe it's a very strong candidate. And VaxGen's development program was always the most advanced one historically. It just ran into difficulties when -- for their second Phase II trial. There were some stability issues with the formulation. But since then VaxGen has solved, we believe, solved their stability problem and that's partially the reason why we completed this acquisition. We believe that it's a strong candidate. We believe we're well positioned. And we believe we have a good chance.

Okay, that's all I have. Thank you and congratulations again on the quarter.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS).

We can't hear anything. Can you please repeat?

(OPERATOR INSTRUCTIONS).

Okay, thank you.

There are no additional questions at this time. I would like to turn your call over to Mr. Robert Burrows for closing remarks.

Thank you, Karen. Ladies and gentlemen, that concludes today's call. Thank you for your participation.

Please note that today's call has been recorded and a replay will be available beginning later today through May 21. Alternatively there is available a webcast of today's call, an archived version of which will be available later today, accessible through our website at www.emergentbiosolutions.com and clicking on the Investor tab. Thank you again and we look forward to speaking to all in the future.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.