Q2 2024 Cavco Industries Inc Earnings Call
Okay.
Yeah.
Good day and welcome to the Casco industries second quarter fiscal year 2024 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question you will need to press star one one on your telephone you will the inherent automated message advising your hand is raised to withdraw your question. Please press star one again.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Mark Fessler corporate controller and Investor Relations. Please go ahead.
Good day, and thank you for joining us for <unk> chemical industries second quarter fiscal year 2024 earnings conference call. During the call you'll be hearing from Bill Boor, President and Chief Executive Officer, Allison Aden Executive Vice President and Chief Financial Officer, and Paul <unk>, Chief Accounting Officer.
Before we begin we'd like to remind you that comments made during this conference call by management may contain forward looking statements, including statements of expectations or assumptions about <unk> financial and operational performance revenues earnings per share cash flow or use cost savings operational efficiencies current or future volatility.
The credit markets or future market conditions.
All forward looking statements involve risks and uncertainties, which could affect <unk> actual results and could cause its actual results to differ materially from those expressed in any forward looking statements made by or on behalf of capital.
I encourage you to review <unk> filings with the Securities and Exchange Commission, including without limitation. The company's most recent forms 10-K, and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward looking statements.
This conference call also contains time sensitive information that is accurate only as of the date of this live broadcast Friday November 3rd 2023.
<unk> undertakes no obligation to revise or update any forward looking statement, whether written or oral to reflect events or circumstances. After the date of this conference call, except as required by law now I'd like to turn the call over to Bill Boor, President and Chief Executive Officer Bill.
Welcome and thank you for joining us today to review our second quarter results.
I thought I'd jump right in with some perspective on what we're seeing in the market.
As we previously reported the dealer inventories that created a big drag on wholesale orders through the first half of the year are now generally under control.
Our company owned stores and broadly throughout our independent dealer network Homebuyer interest is reflected in online leads and store traffic is healthy.
However, as everyone knows the macroeconomic environment is not providing any relief for those prospective buyers.
Having said that we continue to see quarter to quarter order improvement.
That trend is largely coming from street dealers with community is still lagging as expected and discussed last quarter.
Looking forward as those community operators work through their inventories that would be another positive for wholesale manufactured housing orders.
Against that backdrop, we continued to operate at a reduced level.
Production was down from last quarter as certain plants dealt with a lack of orders and continue to slow production.
In line with production capacity utilization was down slightly but still in the range of 60%.
With the already mentioned order improvement, we set a balance point at the current overall production rate.
As a result, our backlogs were consistent with last quarter. We ended the period at $170 million, which equates to five to seven weeks of production.
Clearly, we're anxious and prepare to move plants back to full schedules as soon as the market supports.
In the meantime, our plants have done an outstanding job, maintaining healthy profitability and cash flow through the market challenges.
In the second quarter, our housing gross margin was 23, 2% down one six from last quarter and three 6% from a year ago. When we were running full schedules in the 80% utilization.
Alison will go into the gross margin shifts, but the point here is that reducing shipments about 17% year over year to match lower demand and still maintaining margin to that extent only happens through discipline and operational excellence.
Our retail business has performed exceptionally well.
The adjusted quickly to the changing market conditions last year and stayed committed to their winning processes.
On a same store basis, excluding the added volume from Solitaire retail homes sold through our company owned stores were up slightly from the previous period.
More importantly, the manufacturing and retail teams are working cohesively on product decisions and selling strategies to produce optimal results across the operations.
Teamwork has demonstrated itself as we've brought solitaire stores into the retail operation and filled out product offerings to improve inventory turns.
Overall, our revenues were down sequentially from $476 million to $452 million and pre tax income was $52 million compared to $61 million last quarter.
We generated strong cash flow returned $47 million through share repurchases and added $25 million to our cash balance.
We remain convinced of the dire need for our homes over time, and our strong balance sheet enables us to pursue investments in organic and external opportunities. Despite the near term conditions.
With that I'd like to turn it over to Alison to discuss the financial results in more detail.
Thank you Bill net revenue for the second fiscal quarter of 2024 with $452 million down to $125 4 million or 21, 7% compared to $577 4 million during the prior year.
Within the factory built housing segment net revenue was $434 1 million down $125 5 million or 22, 4% from $559 6 million in the prior year quarter.
The decrease was primarily due to a decline in base business home sold and a decrease in average revenue per home sold partially offset by the solitaire homes acquisition, which contributed $35 6 million in the quarter.
The decrease in average revenue per home was primarily due to lower single Wides and the mix and to a lesser extent product pricing decreases.
After utilization for Q2 of 2024 was approximately 60% when considering all available production days.
With nearly 70% excluding scheduled downtime a marketer whether consistent with our last two quarters.
Financial services segment net revenue increased one 1% to 18 million from $17 8 million, primarily due to more insurance policies in force.
Higher insurance premium rates, partially offset by fewer loan sales.
Consolidated gross profit in the second fiscal quarter as a percentage of net revenue was 23, 7%.
Down 360 basis points from the 27, 3% in the same period last year.
And the factory built housing segment gross profit decreased 350 basis points to 23, 2% in Q2 of 2024 versus 26, 7% in Q2 of 2023.
By lower average selling prices, partially offset by lower material cost per floor, primarily due to lower lumber prices.
Gross margin as a percentage of revenue in financial services decreased to 35, 9% in Q2 2024 through.
44, 6% in Q2 of FY2023 for multiple severe storms in Texas and Arizona.
Selling general and administrative expenses were $61 5 million compared to $66 9 million during the same quarter last year.
The decrease in these expenses with <unk>.
Primarily due to lower third party support cost and lower incentive compensation costs.
Actually offset by the addition of solitaire homes SG&A costs.
Interest income for the second quarter was $5 8 million up 214% from the prior year quarter.
The increase was primarily due to higher interest rates and greater invested cash balances.
Net other income this quarter was <unk> 7 million compared to $5 million in the prior year quarter.
Pretax profit was down 44, 3% this quarter to $51 7 million from $92 8 million for the prior year period.
Net income to cap <unk> stockholders was $41 5 million compared to net income of $74 1 million in the same quarter of the prior year and diluted earnings per share. This quarter was $4 76 per share versus $8 25 per share in last year.
Years second quarter.
Now I will turn it over to Paul to discuss the balance sheet.
Thanks Allison.
I'll cover the balance sheet changes from September 30th 2023, compared to April one 2023.
The cash balance of $377 3 million up $105 9 million from $271 4 million at the end of the prior fiscal year.
The increase was primarily due to a few factors first net income adjusted for noncash items, such as depreciation and common and stock compensation expense.
And secondly, working capital changes related to <unk>.
Inventory decreased from $19 $7 million from lower raw materials at our manufacturing facilities and less finished goods at our retail locations.
Decrease of prepaid and other assets of $17 8 million.
The increase in accounts payable and accrued liabilities of $9 9 million and decreases in consumer and commercial loans.
These cash inflows were partially offset by common stock repurchases of $47 2 million.
Restricted cash increase from cash collected on serviced loans in our financial services segment in excess of what was distributed.
Consumer and commercial loans decrease from loan sales and the pay down of associated loans and fewer new loan originations.
Another assets decrease from lower prepaid income taxes, and a reduction in delinquent Ginnie Mae loans as well as the normal amortization of prepaid expenses.
Property plant and equipment net is down from the sale of Unutilized equipment acquired with the Fox Our homes acquisition, we completed last January.
<unk> expenses and other current liabilities are up slightly from higher insurance losses in warranty reserves, partially offset by lower customer deposits lastly, stockholders equity exceeded $1 billion up $43 million from $976 3 million as of April one 2023.
With that I'll pass it back to Bill.
Our results this quarter highlight the ability of our organization to manage costs and generate cash even when conditions are challenging.
Everyone at <unk> is ready for the inevitable return of demand. So we can help more families get the homes they need.
Abigail can we please open the line for questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
One moment for our first question.
Our first question comes from Daniel Moore with CJS Securities. Your line is open.
Thank you good morning, Bill Allison and Paul I appreciate the time and taking the questions.
Let me start with just the boarder trends Bill obviously, you took a bit higher which is nice to see.
That said were rent during the typically slower period seasonally just can you talk about your expectations for orders and shipments in fiscal Q3 relative to Q2.
When do you expect to be in a position to start to increase production rates.
Yes, Thanks, Dan.
Yes, I mean youre absolutely right. We are now entering the period, we hit about November December.
Typically if you could isolate seasonal patterns that would mean a slowdown in shipments.
Some years, we don't really see that because it gets dwarfed by the macroeconomic factors that are probably a bigger impact, but certainly that's not it.
Something we have to really be keeping our eye on and we're not at this point speculating on how that's going to develop we are encouraged by the by a few things one as we reported a few quarters where.
We have intended to.
Given the exaggerated view of this but a few quarters, where orders have increased quarter over quarter and this quarter continued that.
So that's a real positive and then the other thing that I guess I'd point to that sure. It was the loss on you and others is that we've been able to kind of stabilize.
Backlog, so we feel like we're in balance right now going into it.
More personally focused on macroeconomic drivers and the seasonality, but if we can come through these winter months in good shape and I think it'll be a real positive sign.
Maybe asked another way so far in the quarter production rates held pretty steady with what we saw in fiscal Q2.
Yes, I think generally they have we've kind of hit our <unk>.
Alan's point here, which is what we're trying to convey to people and we'd like it to be a balance point at a higher production level for sure, but it's good to see.
Feel like orders are supporting at least the current production levels. So I'd say that's continued.
Okay excellent.
And maybe just in terms of the gross margin.
It could either dive into it a little bit more of a rank order sort of the.
The impact obviously.
Understood.
The financial services, notwithstanding focusing on the.
Residential housing.
Focusing on the housing segments.
Between input costs mix fixed cost absorption.
What were the kind of the key elements that may be pushed lower sequentially.
Are you seeing any pricing or competitive pressures or is it more a function of those things that I've just mentioned.
So I think maybe a way to think about margins this quarter too.
One is really margins in this quarter, where kind of the.
Store it was really more around cost and not really around price.
<unk> hold fairly consistent but we have seen inflationary pressures, that's driving up iceberg OSB.
Which as you know is one of our larger inputs for materials.
That's causing that slight elevation has caused.
Finance ripple effect through the margin.
Obviously, something that we'll stay close to.
We continue to to be there.
Our efficient in our cost structures and our plans as we adjust to production levels and we can now we can certainly see consistent leverage of our fixed costs at the plant level and then also at the SG&A level.
Got it and so given that and where we've seen the OSB pricing.
Likely those kind of speeds hanging around in those levels gross margin likely to remain at those levels for maybe one more quarter and would you expect to start to see some increase beyond that.
I think we do.
Don't really project on current margins.
Margins that we packed the fact is that we stay very close to IC, which is really neat.
Assistant and rational and then of course, the input costs that the majority of our materials, our lumber and OSB.
So as those contracts.
That level of cost pricing increases or decreases of all through our margin in about another.
60 day trends.
Information that can be accessed and then.
Overhead support continues to deleverage.
All in all I think as we stay close to the story.
Moving on the OSP.
We should be able to factor that into where we currently are at the Q2 level for Q3.
Very helpful. One more I'll jump out.
Are you seeing.
More of a mix shift to lower price point entry level homes is that.
Trend continued and just maybe talk about your expectations for Asps as.
As we look forward over the next couple of quarters.
So we are seeing the trend go toward more single.
But as we've kind of said in the past we think about margin.
Gross margin associated with the singles and multi <unk> more of a function of time.
It's been a productivity within the plants and not so much a distinguishing.
They're between multi and single at the gross margin level clearly.
There is a price.
Differential.
Revenue level.
Dennis just to jump in there are definitely I mean, as you know following the industry for a long time for many years.
Years, we were seeing a move towards more multi section and the mix and for several quarters now we've reported that's reversed.
The quarter to quarter change wasn't that significant but it was a little bit more to singles again, and I think thats.
Our view is that's just a really strong indication of the affordability challenges people are facing out there and folks who are still being coming out to shop for homes.
We reported consistently the traffic is healthy.
So they're out there they're trying to figure out how to solve their home need.
Many of them I think are coming to a realization that theyre going to have to accept less than they might have been able to purchase in years past. So I think that's really what we're seeing through that continuing trend towards single over the last year, it's been pretty dramatic over the last quarter it was pretty mild as far.
Far as the shift.
Perfect, Okay ill jump back with any follow ups. Thank you.
Thanks.
One moment for our next question.
Our next question comes from Greg Palm with Craig Hallum. Your line is open.
Hey, everyone. Thanks for taking the questions I wanted to follow up a little bit on kind of the community re channel and figure out whether your visibility has improved changed at all relative to a few months ago.
Yeah.
Good topic to hit on.
Ah commented very briefly on it that they really haven't come back at this point.
Street dealers are carrying the load right now.
A lot of that we've talked in the past is really driven mostly by.
Communities that have pieces to fill and they've got inventory, but they're having trouble getting it placed as fast as they would like.
All my discussions with operators community operators is that.
It's not a question about whether there is.
Resident demand, it's just been a function of them, having inventory on hand kind of similar to the previous problem at St dealerships and how fast they can place that product. So I think we even commented last quarter that we expected it to be.
Trying to pinpoint too many estimates when we don't have perfect visibility to the last quarter. We said it will probably last through the calendar year and I think thats still true I don't know that will be completely through it in the current quarter or whether it will leak into next year, a little bit but once that does clear just as when we saw the street dealer.
Tories.
Balanced.
That's a positive for our orders.
Greg I will I will open up another topic.
Because you and I have talked about this over time I think everything I'm, saying is the.
To think about it is it is very true for existing communities.
Just even following some of the public statements with some of the REIT operators now we're starting to hear people say, if the cost of capital keeps going up new development.
Is something they're going to hold off one so not really thrilled to hear that but it stands to reason that as interest rates continue going up.
Those operators are balancing whether to invest in new developments or two just kind of hold the capital or pay down debt. We haven't heard that consistently it hasnt been allowed message that's something I think for us to keep our eye on.
Not really an impact on the inventory discussion we've had.
But just kind of a down the road thing to keep on island.
Yes that makes sense.
A huge surprise.
In terms of order rates coming through when they're ready you would you expect them at kind of similar levels as as we as retail has placed those orders post destocking would there be any change in how the community re channel places orders versus what you've seen in retail.
Over the last two quarters.
I don't think so I think once they get.
Once they get cleared of the inventory that they are trying to work through.
We talked with the street dealers on the concept of one to one <unk> else they need a house and I think we'll see the same thing in communities or a meaningful portion of the overall.
And this discussion I am grouping developers communities kind of as one package, but it's a meaningful part of the overall demand. So we've typically talked about that being 30% 33% of the market.
And they haven't been carrying the 33% or so of the current orders. So we'll see it pick up once that continues to clear I'm not sure does that does that address your question, yes, yes totally dead.
And I guess, just lastly, I know you've.
Kind of characterize this as kind of a challenging time.
Casco.
As a company is fortunate good balance sheet.
And all in there's a lot of operators out there that.
Probably don't have any backlog they don't have a good balance sheet and so I'm curious does this change your appetite for M&A have you seen additional opportunities hit the pipeline, what's just kind of your visibility level there.
Yes, I wouldn't say, it's been a big impact right now as far as people in distress and therefore, having to look for alternatives on the manufacturing side as far as M&A work, we're always interested and always in some state of discussion to stay connected with those folks.
So.
Wouldn't characterize that I've seen a lot of distress.
Situations.
I think really we have to look at it youre right. If you lose your backlog that could be an issue obviously, but.
Pricing has held up so I think margins through the industry are still.
More healthy than would be the case in a time when manufacturers are really on the verge of failing.
Yes, that's a good point okay.
Ill leave it there best of luck.
Sure.
Thanks, Greg.
One moment our next question.
Okay.
Our next question comes from Jay Mccanless with Wedbush. Your line is open.
Hey, good afternoon, everyone.
Actually Bill I was going to ask you the pricing question too. So it sounds like things are holding up you haven't had to be really aggressive on cutting price.
Yes, we haven't seen it I mean, I would say it's been consistent over the last couple of quarters, where there are markets, where you see a little bit of price competition, but it's been a little bit and you see other markets markets, where it really hasnt been a factor at all and you can see that in.
No art.
Average selling price that we report is a lot in it with retail and mix and everything else but.
You can see that prices just haven't materially dropped so.
We always say, it's a local business. So when we talked to all of our plants and kind of check in with how things are going we here slightly different stories from plant to plant and region to region.
But where it's been.
Noticeable if theres a little price competition, it hasnt been very dramatic.
That's good to hear.
Could you talk about where charter rates are now and what type of availability you think is out there in the market on the channel side.
Yes on the rate side right now, it's they've held pretty steady from last quarter. So there's still about 9% to 95%.
Yeah visibility is kind of consistent in that sense. So I think if your bookmarks quoting is a pretty good credit score.
Good loan to value, we can we try to report that consistently in that sense.
But I wouldn't say that.
You've got the credit I don't think the availability has gone down.
My last question.
So we've heard from one of your competitors that there may be some people walking away from floor plan financing for street dealers.
Can you talk about your appetite to maybe pick up some of the business, especially with.
Kevin the sizable cash balance you do even notwithstanding the buyback so I have a pretty healthy cash balance is that something where kathryn.
Deeper.
Yes, I think we just kind of react to the situation for the most part as you know we've got a reasonably sizeable portfolio of floor plan loans with our independent dealers and.
I think as we've stayed very close by.
By virtue of having that you stay very close to the credit situation out there so.
So yes, we absolutely would provide floor plan financing in the right situations, we wouldn't shy away from it in this market.
Okay, Great. That's all I had thank you.
Great. Thanks, Jay.
One moment. Our next question as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Our next question comes from Michael Chapman with <unk> Capital Partners. Your line is open.
Thanks.
Quick question on the revenue per module been kind of flat like you mentioned for the last.
Five quarters.
If the if the developers.
Our rolling off with I'm, assuming they'd be at more of a kind of a wholesale margin do you think that kind of gets picked up by more wholesale or could that actually have some upward bias on your Rev per module.
Youre, saying, if we're when we're working with developers or we saw them at wholesale price for retail.
Yes.
Question.
Developers are moving out I'm, assuming that they kind of get wholesale pricing is there any.
Opportunity to get price increase just because youre going to have more retail.
I'm not sure I'm following unfortunately.
Yes, I think youre right that there would be kind of a distribution partner in a sense they would be getting a wholesale price. So the extent that picks up.
We'll see.
Little bit of a shift within our consolidated financials to more wholesale pricing and as we've tried to explain through time about our average selling price our average selling prices affected by them.
<unk>.
Proportion of wholesale pricing to retail pricing so in that case as communities and developers come up at income get into your question.
You would see wholesale take a bigger portion than you might see our reported average selling price dropped a little bit.
Alright.
Got it.
Am I getting at it Michael Yes, No you did you got you and I appreciate that and then just kind of looking at that and we wouldn't we wouldn't consider that we wouldn't consider that to be a negative because that would be incremental volume over where we're at now so.
We'd be we'd be thrilled with that average selling prices an indicator, but we're looking at the bottom line.
No fair enough and then just kind of on inventory levels.
Over the last couple of years inventory turns have gone up inventory days have come down obviously through the pandemic and everything.
Changed.
Are those going to come back or what's the time period that you would think that those will get back to levels that they were in say the 19 area.
Yeah.
Yes.
It's interesting because as we've gotten through the inventory problem.
And it's kind of a general industry statement, certainly statement of our company owned stores as well.
Turns are getting back into good ranges anyway. They are kind of starting at a level two and when you think about the incentives was taken independent deal or are you thinking about their incentives floorplan financing has gone up in cost so they're going to carry less inventory and make sure. Their turns are pretty solid. So when we look at turns even within our own system.
They are pretty good right now they are not bad at all because inventory has been managed down.
Okay.
And then just kind of falling out on the on the financing side I mean homebuilders have been kind of keeping volumes up either stick got homebuilders, keeping volumes up by basically buying down yeah.
Yield so basically using their balance sheet to increase.
Increase the volume.
You guys all the big guys have really good balance sheets on that.
How do you how do you go about doing that or is that just something that you would do in the chattel market because the credit profile that you face.
Yes, I mean, it's something that I'd say as a general rule has not been made.
<unk> driver of our people have gone to market.
Traditionally in our industry the manufacturer sales teams working with dealers for example have been selling on price and product.
<unk>.
So there hasnt been a lot of subsidizing consumer rates, but it's always a tool that you kind of keep an eye on and it's something that could become a factor thats why I think it's good for us to go I'm happy that we're kind of in the position we are with country place because we can always keep an eye on that and if the opportunity came to drive more volume.
By providing this kind of programs, we've got the capability to do it hasnt happened a lot yet but in the end youre trying to manage for.
Integrated value and so its something that we do look at.
And Opportunistically, we would be willing to do it.
I mean could you have discipline on that.
Just to explain the disciplined on that and just to finish that thought.
We have.
What is commonly called an asset light model in our lending business, where we don't want to hold loans.
And so it creates a natural discipline that we have to have investors buying those loans and theyre going to want to buy loans at market.
And so if we buy it down it's a good discipline because the economic reality of buying down that rate is staring us right in the face rate. So I think theres a lot of discipline in that.
Okay and then just my last one I mean, you guys in this quarter generated strong free cash flow by any stretch of imagination and good times Youll, obviously generate more.
Do you have constraints on acquisitions or the volume of acquisitions, you can make just because of the concentration of the industry.
If youre going to do.
You take $200 million in free cash flow and given what you guys have been paying on price of sales.
You guys could make.
Two three or $400 million.
And revenue purchases a year, but thats a lot of revenue for what's remaining outside the big three or four guys. So I mean I look at it Andy.
And the.
The cash flow that you guys have seems like you have almost too much to just do nothing with it and so I'm kind of wondering what the what the what the thought process there given the volume of cash flow and your ability to apply that in the market and acquisitions. Thanks.
Yeah, Yeah, I think one answer to your question is we don't feel constrained on acquisitions.
Kind of maintain our balance sheet. So we can act strategically and acquisitions you can look through our history have been an important part of that so certainly don't feel constrained with either of the cash balance for the cash flow we've been generating as you identify.
So we want to make sure we get those deals at the right prices I think is the limiting factor for US we're always kind of looking to make sure. It's a fair deal for both sides.
<unk>.
So we've.
We've obviously used repurchases is balancing tool on our balance sheet, we've been pretty clear with folks that we.
We want to maintain a responsible balance sheet and thats, where the repurchases come out back into play they are not really speculating on.
Price.
There are more trying to keep our balance sheet appropriate for.
Keeping the dry powder to do the deals youre talking about.
So anyway, I think I think the bottom line to your question is we do not feel constrained and when we see good opportunities in acquisitions, we feel free to do them given our strong balance sheet.
And there is no regulatory constraints due to increasing your market share.
We haven't gotten to that point, yet and I think theres a couple of things. There. One is as I said in my earlier remarks, it's a local business and so that analysis really has to be done at a local business and secondly, when you look at deals.
Deals in this industry I think.
We're part of the overall homebuilding industry not just the manufactured housing industry. So we haven't really felt that we were bumping up against any kind of regulatory constraint on concentration.
Okay, great. Thanks, that's all my questions I appreciate it guys.
Thank you.
Thank you that concludes the question and answer session. At this time I would like to turn it back to Bill Boor, President and CEO for closing remarks.
Thank you.
Obviously, the focus of the call has been on our financial results and understanding market dynamics at the moment internally the various parts of our company are really working better than ever.
For example, our marketing team continues to leverage the digital investments, we've made and that's benefiting our dealers and home shoppers and they are working seamlessly with our expanding national sales team to grow the business. We've got a lot going on in learning and development, where I feel like we've created really world class programs aimed at him.
Proving leadership across the enterprise.
And providing clear pathways for our people.
And finally, the business leadership across manufacturing retail and financial services are doing a great job teaming up to ensure we have the right products and services for our distribution partners.
As I've said before our operators in all business segments are doing an outstanding job managing the challenging market conditions.
And thats reflected in the strong cash flows despite the environment.
But the real focus throughout the company is on getting ready to run when economic conditions support turning the tide on the huge deficit of attainable housing in our country and getting more families into quality Caf go homes, that's a real focus and these conditions really haven't taken our eye off that volatile. So thank you as always for your interest in <unk>.
So we look forward to keeping you updated on our progress.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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