Scansource Inc (SCSC) 2013 Q3 法說會逐字稿

Welcome to the ScanSource quarterly earnings conference call. All lines have been placed in a listen-only mode until the question and answer session. Today's call is being recorded. If anyone has any objections, you may disconnect at this time.

I would now like to turn the call over to Mary Gentry, Treasurer and Director of Investor Relations. Ma'am, you may begin.

Thank you, and welcome to ScanSource's earnings conference call for the quarter ended March 31, 2013. With me today are Charlie Mathis, our CFO; Gerry Lyons, SVP Finance and Principal Accounting Officer; Scott Benbenek, President of Worldwide Operations; and Mike Baur, our CEO. We will review operating results for the quarter and then take your questions.

Certain statements made on this call will be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties include, but are not limited to, those factors identified in the release and in ScanSource's SEC filings. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. ScanSource undertakes no duty to update any forward-looking statements to actual results or changes in expectations.

We will be discussing both GAAP and non-GAAP results during our call and have provided reconciliations between these amounts in our press release.

Mike Baur will now begin our discussion with an overview of the quarterly results.

Thanks, Mary, and thank you for joining us.

For the third quarter 2013, we reported net sales of $683 million and diluted EPS of $0.50, both within our expected range. For the quarter, we had strong operating performance in our North America business units, which offset disappointing results for our international business. During the quarter, we achieved better attainment of vendor programs and favorable timing of recognition of vendor programs, which contributed to a solid gross margin of 10.08%.

In North America, all of our business units except Catalyst Telecom increased sales year over year. Sales declined for Catalyst Telecom principally from the end of our distribution agreement with Juniper Networks as of September 30, 2012, and in addition, our gross and operating margins in North America increased both year over year and quarter over quarter.

Performance for our international business was much weaker. Sales declined there 2% year over year. Our international gross margin declined and we had an operating loss for the quarter. This loss was principally from our communications business unit in Europe, including restructuring cost and higher bad debt expense.

Now for an update on our ERP project. In March, Tata Consultancy Services, TCS, presented ScanSource an integrated project plan that included its estimate of the time and cost to complete the project. This plan indicated that the effort remaining was going to approach the $72 million upper end of our previously disclosed range.

We are currently evaluating alternatives to our project plan. In April, we moved a significant number of ScanSource team members who were working on our ERP project back into our business roles and reduced our spending on TCS and other third party consultants. These actions will decrease our ERP cost for the June quarter. This is an important project for our company, and we fully understand the strategic importance of getting it right, even if it takes us longer to implement. Meanwhile, our legacy ERP systems continue to run our business successfully.

With that, let me now turn over the call to Charlie to discuss our third quarter financial results in more detail.

Thanks, Mike, and good afternoon.

Let me first add some color to Mike's comments on the European restructuring. We eliminated positions with annualized cost savings of $3.1 million from, one, reducing headcount in our communications business in Europe to scale our cost structure with our current operations and, two, by moving certain back office functions to the United States.

As a follow up to the December 2012 quarter in which we had special charges associated with our back office in Brussels, we reviewed certain of these back office functions and determined that we could do them more cost efficiently from the United States. These are non-customer-facing, transaction-intensive positions which we do very well in the United States.

One other point to add here looking to improve the European operation's profitability is the fact that over the last several months we've had US team members in Brussels working with our European team to implement best practices and better tools in the underwriting and credit areas based on the experience and methodology that's been effective in the United States.

Now turning to the numbers in the third quarter of 2013, we delivered worldwide sales of $683 million in the third quarter 2013, a 3.5% decrease from the prior year and an 8.7% decrease from the December quarter. As a reminder, our distribution agreement with Juniper Networks ended and Juniper represented approximately $37 million in net sales in third quarter 2012. These third quarter 2013 results were within our expected sales range of $675 million to $695 million for the quarter.

On a geographic basis, North America sales decreased 4% from the prior year quarter to $508.4 million. Our international sales decreased 1.9% to $174.6 million. Excluding the translation impact on foreign currencies, international sales remained relatively flat compared to the prior year quarter.

Our POS barcode and security product categories represented 64% of total sales for the quarter with the remaining 36% for communication products. Within our product lines worldwide POS barcode and security products increased 1% over the prior year quarter. Sales for our communications units decreased 10% from the prior year quarter. The decrease is primarily due to the termination of our distribution agreement with Juniper Networks.

The overall gross margin increased to 10.08% or a 29 basis point improvement from the March 2012 quarter and 14 basis points sequentially. The increase from the prior year is largely due to the timing of recognition of vendor programs and favorable product and customer mix in North America, including overall lower big deals. The increase in margin in North America was partially offset by lower gross margin in our international segment primarily due to weaker demand and competitive pricing pressures.

SG&A expenses in the current quarter totaled $47.9 million compared to $46.7 million in the prior year and $49.4 million in the sequential quarter. SG&A expenses for March 2013 quarter included approximately $1.2 million for European restructuring costs as previously discussed.

In addition, SG&A expenses include increases to bad debt reserves, principally from higher bad debt expense for European communications and higher country-specific (inaudible) reserves in Venezuela. Accordingly, the allowance for bad debts increased to $31 million at March 31, 2013 from $29.8 million in December 31, 2012 while accounts receivable declined.

Each quarter, we re-measure [the] earn-out for the CDC Brazil acquisition to fair value. In third quarter 2013, we recorded a fair value adjustment loss of $100,000 compared to losses of $1 million, $72,000, $533,000 in the prior year in sequential quarters, respectively.

For the March 2013 quarter, Brazil's actual results were less than the projected results. Operating income was $20.8 million, down 3.2% from the prior year and 14.9% sequentially. Expressed as a percent of sales, operating income was 3% in the current quarter compared to 3% in the prior year and 3.3% in the December quarter. Operating income for the North America segment increased 16.3% to $25 million from $21.5 million in the prior year. The increase in operating income for North America is primarily due to higher gross margins and a decrease in bad debt expense from collections during the quarter.

The international segment recorded a loss of $4.2 million compared to income of $14,000 in the prior year. The decrease internationally is due to lower gross margins, higher bad debt expense in Europe communications, and costs associated with the European restructuring mentioned previously. As we discussed earlier, we are working to return our European communications business to profitability.

Interest expense was $102,000 for the quarter, and interest income was $483,000. The effective tax rate was 34% this quarter compared to 32.3% in the prior year quarter. Our return on invested capital totaled 13.3% for the quarter compared to 13.5% and 15.2% in the prior year and sequential quarters, respectively.

Diluted earnings per share totaled $0.50 for the current quarter compared to $0.53 and $0.59 for the prior year and sequential quarters, respectively.

Moving to the balance sheet, cash and cash equivalents on hand totaled $93.9 million at the end of the quarter compared to $29.2 million at June 30, 2012. Our days sales outstanding, DSO, was 57 days at March 31, 2013 compared to 57 days and 56 days in the prior year and sequential quarters, respectively. DSO increased slightly from our international business.

Inventory turned 5.6 times during the quarter compared to 5 times and 5.7 times in the prior year and sequential quarters, respectively. We had 11.9 paid for inventory days at the end of March 2013 versus 14.8 and 16.3 days for the prior year and sequential quarters, respectively. Paid for inventory days are down from prior periods primarily due to lower inventories. We reduced inventory levels by $68 million during the quarter. Currently, if the economics and ROC impact make sense, we're using cash on hand to take advantage of early pay opportunities with vendors, which may increase our paid for inventory days by decreasing the days payable outstanding.

The Company spent $1.3 million on capital expenditures during the quarter, primarily on investment in the new ERP system. Through March 31, 2013, the Company has spent or accrued approximately $41.4 million on the new ERP system of which $28.6 million has been in the form of capital expenditures.

During the third quarter 2013, SG&A expenses included $2.3 million in ERP related costs including internal personnel costs. As Mike described earlier, we are currently doing an evaluation of our ERP project with a reduced team. Accordingly, in the fourth quarter, we expect to spend less than half of what was spent last quarter.

The Company held $5.4 million of interest-bearing debt at March 31, 2013 compared to $9.7 million at June 30, 2012. Average debt for the March 2013 quarter decreased to $15.7 million from $41.3 million in the June 2012 quarter.

For the third quarter 2013, we generated $86 million in cash from operations.

I'll turn it back over to Mike for business unit comment and results.

Thanks, Charlie. I'll start with our North American segment, which includes the United States and Canada and represents 74% of overall sales. In North America sales of $508 million decreased 4% year over year. On a sequential quarterly basis, sales decreased 7%, which is consistent with our typical seasonal decline from the December to the March quarter.

Our North America communications unit had double-digit year-over-year sales growth, better attainment of vendor programs, and lower inventory balances. We had record sales quarters with Polycom Voice, AudioCode, SpectraLink, and Edgewater Networks. We also had strong growth with ShoreTel resellers that were transitioned to distribution and for the new resellers that we recruited and launched.

Our big deals were up year over year though down from a strong big deal quarter in December as expected. In February, Polycom named ScanSource Communication as its North American distributor of the year for a record tenth year in a row.

Our security business unit had high single-digit year-over-year sales growth. March was our best single month ever for number of customers sold to and for total call volume. In addition, we had higher margins, lower inventory levels, and better attainment of vendor programs. It was another record big deal quarter, although the average deal size was lower than last quarter. We are headed into our busy season, the June and September quarters, for security with one of our top vendors reducing its number of distributors, and we have a healthy big deal pipeline. Starting July 1, we will become the first and only distributor for Pivot3, a leading supplier of video surveillance and virtual desktop infrastructure serverless storage appliances.

Sales results for North America POS and bar code were up slightly from the prior year quarter. While big deals increased year over year, the big deals represented a lower percentage of overall sales this quarter versus the December quarter. We had good growth in point of sales systems including big deals from Toshiba POS systems and good growth in our Payment Solutions Suite offering, including the Genco, MagTek, and ID TECH.

Mobile ETC is our comprehensive mobility program to help resellers sell, deploy, and support mobile solutions. In February, they became the first distributor to offer Motorola's WLAN cloud services through a hosted controller.

We also added three new vendors around mobility -- RAM Mounts for mounting equipment, SOTI for mobile device management solutions, and Archelon enclosures for product wraparounds. Catalyst Telecom sales declined year over year from ending our distribution agreement with Juniper last year and because of lower Avaya enterprise sales. The quarter included no Juniper revenues compared to sales of approximately $35 million for the March 2012 quarter, which at the time was our highest quarter with Juniper. Big deals continued to be weak, though higher than the December quarter, as end users delayed purchasing and upgrading decisions.

We had double digit year-over-year growth with our wireless vendors in part from the bring-your-own- device momentum and good growth with networking and headset vendors.

Aruba Networks recently recognized Catalyst as its US and Canada distributor of the year for the third year in a row. We recently introduced a new fast quote tool for Avaya Radvision video solutions.

Our newest business unit, ScanSource Services Group, provides education and training, network assessments, custom configuration, marketing [and] our SUMO partnership community. We provide marketing services to help our resellers grow their businesses, including ways to increase demand and customized lead generation. These services were well received in the quarter and we're also expanding our training offerings such as holding virtual training classes for Avaya, IP Office, and becoming an authorized Polycom training partner. We also saw increased activity for our networking assessments and Avaya Radvision video installations.

Now turning to our international segment, which is 26% of overall sales this quarter. International net sales of $175 million declined 2% year over year. Excluding the translation impact of foreign currencies, net sales were flat year over year. Europe POS and bar code sales increased slightly year over year with good growth in the UK, the Netherlands, and Eastern Europe. Competitive pricing pressures and weaker demand continued, resulting in lower margins on some big deals. We've been working on our vendor programs and have made some progress.

We've already discussed changes for our Europe Communications business unit and have named Rudy De Miersman as managing director. Sales declined year over year principally from declines in Germany and the loss of approximately $2.3 million in Juniper revenues from the March 2012 quarter. We did have a record sales quarter in the United Kingdom, as well as a record quarter in Austria and for our Avaya SMEC small and medium sized business products.

However, our big deals were lower than expected, particularly in Germany where we have had a high dependency on big deals. Our success in the UK with run rate business is leading us to focus our team in Germany on building more run rate business there and continuing to build our relationships with our key vendors, including Avaya, Extreme, Life Size, and ShoreTel.

Our Latin America business includes operations in Brazil, Mexico, and Miami where we serve US-based exporters, the Caribbean, and the rest of South America. Brazil continues to be challenging as our sales team missed their plan for the quarter and also for the fiscal year to date due to several issues. Since our acquisition of CDC Brazil, the GDP, gross domestic product, in Brazil has slowed down significantly from 7.5% in 2010 to 0.9% in 2012 with expectations for 3% GDP growth in 2013.

The Brazilian government has also made changes to certain tax credits on imported products, which reduced the tax benefit and caused market disruption during this transitional period. We've also faced intensified price competition associated with a large vendor where we've lost some market share. We've also had some big projects get delayed and pushed out to the next quarter.

During the quarter, we did have good performance with certain AIDC vendors including Honeywell, Motorola, and Zebra. Recently, our team was named distributor of the year for Motorola in Brazil, and we have recently introduced new educational videos for Panasonic, Toughbook, Elo Touch, and Daruma.

Turning to Miami and Mexico, we are disappointed in our operating performance there. Even though we had sales growth in Mexico, our business continues to be under pressure as our margins are lower than we need so that we can add value in the marketplace. Part of the problem is the margin pressure from over distribution in the region, and recently the lack of revenue from economic disruption in two major Latin America markets. In spite of these challenges, our team remains committed to solving these issues as long as we have the support of our key vendor partners in Latin America.

So turning now to our next fiscal quarter, we believe net sales for the quarter ended June 30, 2013 could range from $715 million to $735 million, and our earnings per share could range from $0.58 to $0.60 per diluted share.

At this time, we'll be glad to answer your questions.

Thank you. (Operator Instructions) Okay, we have our first question from Chris Quilty with Raymond James. Your line is open.

Hi, thanks, guys.

Hey, Chris.

Okay, so, first just a question for you on the charges. I think you spelled out pretty clearly the charges for the upcoming quarter, but did you give any guidance on whether these are one-time charges for the fourth quarter or are these continuing costs that we might see on a go-forward basis?

Chris, hey, this is Charlie. The $1.2 million charge, restructuring charge, that we took on the European restructuring was in the margin in quarter, and we don't anticipate any additional restructure charges.

Okay, good. I did misunderstand that then. Also, I heard you mention some more favorable vendor programs specifically on Europe, but I didn't hear similar language with regard to North America. Can you give us an update now that we're several months into the year here on how those restructuring efforts or resetting the levels had panned out or how you feel they panned out?

Yes, Chris, it's Mike. We talked about that all of last year. And as we came into this quarter and into the year, our challenge was sitting down with vendors on a one-on-one basis and understanding what their goals were for the year and how they linked up with ours and how does that translate into profitability for the programs that we deliver for them. And I would say this, is that we've referenced a few cases where we've seen some improvement. There's nothing that overall has changed significantly or dramatically. I would say also that it's more on a quarter-to-quarter basis and it is different by vendor and by geography and by technology.

So, I don't think we're going to at some point -- at this stage be able to say, yes, we've really got a lot of improvement here because when I listen to our vendors, they're starting off this year also with not great news. There's a lot of weakness in demand. And so when I look to their results, I think they're going to be asking for growth from our teams, both domestically and internationally, so that they can reward us with additional incentives. So I think absent some growth it's going to be harder to see that they will improve those programs in a significant way.

Got you. With regard to Europe, for years Europe seemed to work pretty well for you and recently it seems to have kind of hit the rocks. And is it a matter of just the macro environment or it appears that there's perhaps some management issues that have become apparent as the tide has receded here? Is there fundamental issues with the way you have that business structured that are that different than how things are run in the US? And how quickly do you think you can get those issues resolved?

Sure. I think it's two different pieces. So, if you look at the Europe communications business, we highlighted that throughout the last four to six quarters that we were not happy with the performance. And we had said all along that we needed to really increase the revenues there to absorb the cost that we had, not only from the acquisition of Algol in Germany and MTV Telecom in the UK over the last four years, but also we added additional infrastructure, meaning people, to support the business that just didn't materialize. So we were probably overly patient last year.

And so as we looked at how do we rightsize the business to bring the communications part of Europe back to profitability, we then looked more deeply at is there something we can do to leverage some of the expertise and the volumes that we have in the US. So as Charlie indicated, we looked at our Brussels headquarters location, which supports not only communications but also barcode, and we looked at places that we can be more efficient. Because what's happened in the barcode business in Europe is more of a slowdown in demand, including some competitive pressures. And I think that's put pressure on the earnings leverage in that unit.

So, based on what we have seen for the last couple of quarters, we decided to go ahead and enact some cost saving measures even in the Brussels back office, as Charlie said, to move some of the functions that are not customer facing to Greenville where we've got additional capability and resources. And frankly, we can do it at a lower cost in Greenville than Brussels, Belgium.

So, I think communications has been broken for a while. We think we've taken the right actions to fix that going forward. We think we're improving the potential for the bar code business to get back on the profitability track it has been for a long time by reducing some of that structural cost there. And then hoping demand will re-emerge in Europe, and again, listening to our vendors over the last week or so, most of our vendors had a tough time in Europe this past quarter.

Got you. Switching gears to the ERP, it sounds like with pulling bodies off that effort you're going to probably do more of a deep dive and look at whether you want to stick with your existing solution. Is that a possibility that you could start at ground zero and go in a different direction altogether?

Well, I think what we've learned since this last effort where we hired TCS to come in and take a hard look at what we presented them from our previous provider and get their best estimates of what it would take to get done, we were surprised that there was that much work left remaining. So that presented us with a decision do we go down that path and end up spending near the top end of that range of $72 million or do we stop and re-evaluate where we are and make sure before we go forward?

So, right now, we're in a -- let's be real sure of what we're going to do before we take the next step. So we're going to take enough time to do that. And I didn't want to have a lot of people sitting around because, again, we're going to move some functions back to the US from Europe. We've got a reason not to want to hire a lot more people right now in this slower growth environment. And so we're going to take that team, most of them, and put them back to work here in Greenville pending what we decide to do going forward.

Okay, and final question. I think this was the first time I mentioned you, from a product perspective, mention cloud services as something that you're moving into. And I don't know whether you want to stick specifically to the barcode point of sale side or broadly across the portfolio. Are there any new technology trends that you see as particularly promising as drivers for the business?

Well, I think what we're seeing is there are some key vendors that are starting to emerge to help manage services around mobility. And the vendor we added in barcode, called SOTI, they're one of the established vendors of managed services through the cloud. And so most of our key mobility vendors in the barcode space have already started recommending them as a key vendor partner. So adding them is really more adding another option to our reseller's portfolio. It doesn't really change a lot the dynamics of how we work with our resellers.

So right now there's not any major changes underway. So I think instead of saying that we're taking some applications that we're running on a mobile device and moving them into a cloud, these cloud services are more from a management perspective, not from an application perspective.

But, clearly, if you look at ShoreTel, they've got a cloud-based offer. For example, they bought that company a year and a half ago or so. And they're looking at how do they make the offer to the channel -- you can sell premise-based equipment or you can sell cloud-based. So that one is not quite rolled out yet, but that's one that we're looking at partnering with ShoreTel on.

So I think from a ScanSource perspective, we're looking at our vendors to drive the cloud services options and really nothing specific that ScanSource has had to do to support that yet. But we are looking at it real close and making sure we understand the implications.

Got you. Thank you, gentlemen.

Thanks, Chris.

Our next question comes from Keith Housum with Northcoast Research. Your line is open.

Yes, hi, everyone. This is actually John Barta on the line for Keith.

Hey, John.

Thanks for taking my call. I guess looking at Brazil, it seems like we've entered this slower period of growth. And I just didn't know if you guys have any strategy or plans of different ways of execute, if it's adding more vendors or just maybe different products or focusing more on the barcode side, to maybe offset some of this slowness.

Yes, John, thanks for the question. We clearly are looking at how can we execute better in the space that we're in. Part of it is we felt these competitive pressures in one of our key areas and that's from a new distributor. And so we're going to make sure we're not giving up too much market share in that particular case.

The other thing that we mentioned last year that we've really not been able to exploit yet is taking some of our other product portfolios from the US to Brazil. We mentioned last year the communications products as an ideal one to add to Brazil, and we haven't made the progress there with any key vendors yet. We did sign AudioCodes a year ago, but that's really the extent of our communications strategy.

We also signed an agreement with HP for their networking products, and that's also just getting started. So there's some opportunity in the communications space, but the team is focused right now primarily on executing better in our existing barcode and POS vendors and not really looking to sign any key new vendors there. They want to execute better, make sure we're performing, taking market share, executing in a value-added manner, and I think that's our plan for the next couple quarters.

Okay. And then moving back to the signing vendors, even though it's not a focus, is there any really big push back on moving down there with -- I think you mentioned some regulatory issues where maybe vendors wouldn't want to sign up over the coming months? Or is it just not something you're looking at right now?

Well, the only regulatory issue that's come up is there's just a change in tax status, which in Brazil happens a lot, relative to certain products. And so if you're a product -- if you're a manufacturer that has to import your products into Brazil, then you do have some challenges to get that done successfully. If you're manufacturing in Brazil, then it's a different scenario.

What we're finding is more of our vendors are trying to find a way to have some operation in country, in Brazil, to better mitigate some of these tax burdens. I would say that is a focus for some of the vendors that are not there today. They see the market opportunity but they also see that it takes more time than maybe they thought and there's more difficulty in overcoming some of these barriers to entry to get your product into Brazil through these tax programs.

Okay. And then the last question I had for you -- more on the enterprise side, focus on rugged devices, are you seeing any resistance from any end users on moving on to products on the Windows side with the lack of a clear roadmap or are they looking at more Android-based devices going forward?

Well, I know that that's been a discussion recently with a lot of our resellers who wanted to know where Microsoft's roadmap is for the future moving from the 6.5 product to their new Windows 8. But I think right now we've not seen that in our channel as a barrier to sale today. I think it's a barrier to sales for sales that are going to happen over the next year or so, but I think right now it's some uncertainty maybe at the larger enterprise, but not at the small to medium-size.

But, clearly, the direction, if you've got a product today that's designed around the existing Microsoft embedded platform, those developers are going to need to make a decision sometime in the near future about either moving down the new Windows 8 platform, which'll be a significant re-write of their code, or move into an Android platform, which is another big re-write, or to some other alternative out there. And there are some alternatives that you can also write your product to if you're now looking at making a change. So, I would say it's not affecting our business today, John, but it's clearly something our customers are talking about.

All right. Thanks a lot, Mike.

You bet.

Okay, our next question comes from George with Oppenheimer. Your line is open.

Thank you for taking my questions.

You bet.

You mentioned some weakness in demand from the guidance coming from your vendor base. Can you give us, just in a general sense, which segments you're most cautious on in the guidance and which ones you feel are performing at least typically or maybe stronger than normal?

Well, we typically don't comment on our vendors specifically, and so I've got to be careful about talking about segments because we have some pretty significant vendors in each one of those segments. So I would say that our guidance would suggest that overall demand is fairly soft. And if you look at our guidance year over year, if you strip out the Juniper revenues from last year and if you look at the midpoint of our guidance, we're basically flat year over year. So there's no real big difference between -- in that guidance the emphasis on communications versus barcode or even international versus North America. They're in the same proportions that they have been for the last few quarters. So we're still looking at the same kind of split between all of those different opportunities.

Okay. And also from just a general standpoint, can you give us an idea of how your Wi-Fi networking contribution is in each of the various areas -- security, Catalyst? It sounds like, at least on the Catalyst side, wireless is doing fairly well.

Yes, we don't break out Wi-Fi, but it's been a growth area for a while. We've probably, for the last two years, been really pleased with the growth in not only the Aruba business that we've talked about consistently, Ruckus has done well. Motorola's wireless business has done well. We've got Cisco's wireless business. We probably have one of the best wireless offerings in the market, and all of the products pretty much we sell have or are endpoints that require some infrastructure from a wireless perspective. So we tend to do pretty well in that because all of our endpoints require someone's wireless infrastructure. And I think it's been an area that we've seen some new vendors over the last couple years, and that's why we've continued to do well there.

Okay. And have deal sizes stayed the same or gotten bigger there?

I would say for ScanSource they generally are not large. They're not just large, huge like campus-wide deals. They're generally medium-sized transactions to support the endpoints that we're selling.

All right. Thank you very much.

You bet.

(Operator Instructions) It looks like we have no further questions today.

Great. Well, thank you very much for joining us. And we plan to talk to you next on our conference call to discuss our year-end results and June 30 quarterly earnings, expected to be in August 2013. Thank you very much.

Thank you for your attendance. You may disconnect at this time.