Codexis, Inc. (CDXS) Q3 2022 Earnings Report, Transcript and Summary

Welcome to the Codexis Third Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] At this time, I will now turn the conference over to Brendan Strong from Argot Partners, please go ahead.

Thank you, operator. With me today are Dr. Stephen Dilly, Codexis' President and Chief Executive Officer; Kevin Norrett, Chief Operating Officer; and Ross Taylor, Chief Financial Officer. During this call, management will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our guidance for 2022 revenue, product revenues and gross margin on product revenues, as well as our strategies and prospects for revenue growth and successful execution of current and future programs and partnerships. To the extent that statements contained in the call are not descriptions of historical facts regarding Codexis, they are forward-looking statements reflecting the beliefs and expectations of management as of the statement date, November 3rd, 2022. You should not place undue reliance on these forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are in some cases beyond Codexis' control and that could materially affect actual results. Additional information about factors that could materially affect actual results can be found in Codexis' Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28th, 2022 and on Form 10-Q filed with the SEC on, August 5th, 2022, including under the caption Risk Factors and in Codexis' other periodic reports filed with the SEC. Codexis expressly disclaims any intent or obligation to update these forward-looking statements except as required by-law. I'll now turn the call over to Stephen.

Thank you, Brendan and thanks to everyone for joining. Since our second quarter earnings call, we've been working to refine Codexis strategy by assessing the markets where Codexis and our proprietary CodeEvolver platform have a clear competitive advantage. This review of Codexis ongoing programs enable us to make intentional choices about where we are best equipped to drive long-term success and increase market penetration and ultimately where we should focus our resources. Although this is an ongoing process, we have the building blocks of a refreshed vision for the company. I look forward to providing an initial high level view of this strategy during today's call and anticipate drilling further into the details in the first quarter of 2023. We've recently made several, exciting appointments to our leadership. Kevin Norrett, who is with us on today's call recently joined Codexis as Chief Operating Officer. We're also delighted to welcome Meg Fitzgerald as our new Chief Legal Officer and General Counsel, with Rahul Singhvi, rounding out the recent additions as a new member of our Board of Directors. Each of these individuals brings valuable expertise to our team and will prove critical to executing on our vision. Right now, we're very focused on prioritizing the most attractive market opportunities for our business segments and heightening our commercial discipline across the company. Our enzyme engineering platform has many potential uses and Codexis has undertaken many exploratory projects rooted in interesting science in both our Performance Enzymes and Biotherapeutics business segments. In fact, we increased our R&D investment significantly during the last two years. We initiated many of these efforts when capital was easier to access and relatively inexpensive. Now today's market reality is significantly different. So we need to react accordingly a narrower focus. We've learned a great deal from each program in our pipeline and we're able to apply those insights to make informed decisions about how and where we choose to invest moving forward. And whether we make these investments on our own or in partnership with others. Kevin will share additional insight on where we see opportunities for Codexis to focus in the near-term. One of our critical guiding factors is to ensure we maintain cash runway through the end of 2024, providing us with time and flexibility to leverage the extensive scientific capabilities and intellectual property that we have at Codexis. Our comments today will focus on the opportunities in which we see the strongest potential for near-term economic success. Specifically, when discussing our Performance Enzymes segment, we will focus on our pharmaceutical manufacturing and Life Science businesses, which represent roughly 95% of the revenue that we generate in this segment today. Within the Life Sciences market as with the rest of our business, we aim to identify and invest in programs to drive deeper value from a more concentrated set of assets. Similarly, in our Biotherapeutics business, we will highlight which of our assets based on analysis of the market opportunity and competitive environment we view is having the greatest potential to create significant value within the next few years. We at Codexis know how to create and build a profitable business. Even when we exclude profit contribution from PAXLOVID, we project our pharmaceutical manufacturing business when looked on as a standalone entity will generate a very healthy operating margin in 2022. Furthermore, we can continue to grow pharmaceutical manufacturing with modest investment. As a reminder, today we are selling enzyme to biocatalysts, to pharma manufacturers for 14 therapeutic drugs that are currently approved for commercial sales. Another 20 drug candidates currently in Phase II and Phase III clinical trials use our enzymes in their chemistry manufacturing control process. This pipeline, the potential approvals reinforces our confidence in our ability to continue to grow this sector over time. Although, this is a healthy and growing business we have work to do, many of the larger companies have already developed or will soon develop their own biocatalytic capability. To continue to compete effectively, we must increase our commercial efforts to reach new customers and work tirelessly to improve our responsiveness and value add proposition. Shifting now to our Life Science business, we believe this is an area with significant growth potential for Codexis in 2023 and beyond. We believe our CodeEvolver technology can make important contributions across a broad range of Life Sciences applications. Inevitably, this means we need to carefully choose where to invest ourselves and where to leverage others. Specifically, we view genomic sequencing and DNA and RNA synthesis as attractive markets in which Codexis technology and products can deliver strong competitive advantage. To date, this has been publicly demonstrated by our licensing to Roche of an improved DNA ligase for NGS library prep, which continues to progress towards commercialization in new kids, as well as our development what we believe to be a best-in-class terminal transferase enzyme for enzymatic DNA synthesis in collaboration with Molecular Assemblies. We will continue to leverage our core strengths of developing unique engineered enzymes or indeed suites thereof that either enable or improve our genomics customers product offerings or our biopharma customers manufacturing processes. Our goal is to focus on identifying opportunities for Codexis to act as a long-term partner, ultimately providing end-to-end solutions for customer needs as opposed to being limited to our standalone enzyme product offerings. We also remain optimistic about the value that our innovative partners Molecular Assemblies of Sequel bring to the equation and we're confident they will play a key role in our path to success in the Life Sciences arena. Now raving out the performance enzymes segment, there are clearly applications for our technology in other areas such as food, nutrition and industrial enzymes. However, these end-markets represent a very small component of our current revenue and there is considerable if need both in terms of investment and expertise to turn this into a profitable business. Given the market reality I outlined earlier, we'll be very thoughtful about how we spend resources here moving forward. Shifting to our Biotherapeutics business. Our most advanced asset is CDX-7108, a drug candidate for the treatment of exocrine pancreatic insufficiency or EPI. This assay is being co-developed with our partners at Nestle Health Science. EPI occurs when a patient cannot produce sufficient pancreatic enzymes specifically lipase to digest fat, protease to digest protein and amylase to digest sugars and leads to weight-loss, metabolic disturbances in fat malabsorption. EPI is currently treated with preparations of porcine derived pancreatic enzymes that are enteric coated to survive the acidity of stomach. Although, the existing therapies are reasonably effective at delivering amylase and protease activity, achieving adequate levels of lipase activity is challenging and patients often experiencing, continuing symptoms of fat malabsorption. Despite their current limitations, the two leading therapeutics on the market today have combined annual sales of roughly $1.5 billion. CDX-7108 is a potent lipase that has been specifically engineered to remain highly stable in stomach acid that overcome the limitations of existing therapies by delivering improved lipase activity with a less burdensome dosing schedule. Our partners at Nestle Health Science are currently dosing our first patient in a Phase Ib multi-dose trial having successfully completed the volunteer portion of the study. We anticipate that in the first quarter of 2023 we'll have sufficient data to support moving forward with a Phase II clinical trial and assuming positive data we'd expect to start the Phase II trial in late 2023. CDX-7108 is an attractive first entry into the biotherapeutic space. We're using our technology to improve upon a proven approach in a multi-billion dollar existing market with a partner that is already achieved commercial success. Our second clinical stage asset CDX-6114 fully out-license Nestle Health Science is an oral enzyme candidate to treat patients with phenylketonuria, one of the most common inborn areas of metabolism or [IEMs]. Nestle Health Science is currently optimizing the formulation of CDX-6114 to improve performance and we expect them to initiate a Phase I clinical trial in 2023. If this collaboration can successfully demonstrate benefit in PKU patients with CDX-6114, this will inform our decisions around the oral enzyme approach to other IEMs. Switching now to gene therapy. While our CodeEvolver technology undoubtedly has many potential applications in gene therapy, we are very well aware that this is a complex and competitive arena. Specifically, we can use CodeEvolver to engineer proteins that may improve targeting an expression within the body when administered as transgenes in gene therapies offering potentially improved therapeutic benefit as compared to the current options for treatment for conditions like Fabry disease, Pompe disease and Hemophilia A. On this front, we have a fruitful partnership with Takeda. As with our collaborations with Nestle, our partnership with Takeda is structured to help us learn, derisk, cover cost and ultimately leverage the power of our transgene engineering capabilities to introduce new therapeutic options for rare diseases and in markets where the unmet need remains high. We are hopeful that one of our transgene therapy assets for gene therapy partnered with Takeda should enter Phase I clinical trials in late 2023 or 2024 and we look forward to providing further updates. In summary, as a relatively small company, we have an abundance of opportunities to build value both on our own and in carefully chosen partnerships, but we need to be disciplined about how much we can successfully take on given our finite resources. Now I'd like to turn the call over to Kevin to discuss in greater detail our go forward commercial strategy.

Thank you, Stephen. As many of you know, I've been with Codexis since the beginning of October and since then I have been spending my time understanding our capabilities and assessing current market opportunities to determine our best bets for future commercials. I joined Codexis because of the impressive core science, validating partnerships, existing profitable business and vast potential for growth across a variety of life science markets. As I've gotten to know the company over the past five weeks, I recognize that there are opportunities to increase our understanding of the commercial opportunity and to refine our customer strategy. My work is focused on driving consistent short-term revenue growth within pharmaceutical manufacturing and life sciences, as well as delivering long-term value creation through our Biotherapeutics pipeline. We have a real opportunity to further communicate the Codexis value proposition to downstream customers and I will be driving an increased commercial focus throughout the organization in the process. Let me provide you with some examples. In pharmaceutical manufacturing, we have strong relationships with many of the pharmaceutical manufacturers in the world, building upon the strong foundation, my goal is to improve our targeted identification process, with a focus on customers that require support for both pharma manufacturing and DNA and RNA synthesis. By focusing on adjacent customers end markets, we can leverage our expertise to quickly drive commercial engagement. One near-term focus area will be increasing our reach to mid-size pharma companies who are looking for cost effective solutions to manufacturer their drugs. To do this, we plan to make some refinements to our selling model and modestly increase our sales footprint. In addition, we have begun a process to take a closer look at how we are organized geographically to ensure efficiency as it relates to increase customer touchpoints. In Life Sciences, our initial forays have typically focused on specific enzymes for insertion into customer workflows as replacements for a particular step. While this remains a key aspect of our strategy, it's far from the only approach to this market. As we evolve our strategy in this space, we expect to target workflows more holistically, co-optimizing several enzymes for combination by our customers and longer-term consider developing and selling kits, which could provide our customers with a more complete solution. Our overall strategy here is to move from R&D-focused revenue streams towards recurring product sales. To accomplish this, we need to develop suites of enzymes that work in tandem for our end customers. For example, improved library prep workflows for next-generation sequencing or PCR-based approaches for RNA sequencing. Finally, in our biotherapeutics business, we are in the process of prioritizing our pipeline of assets and clarifying the investment required to reach the next critical value inflection point to support partnering or Codexis driven clinical development. With a focus on the market opportunity, competition, reimbursement, potential pricing, we plan to develop a deep understanding and clear parameters about how much to invest in an asset, when to partner and when to stop investment. This is an exciting time for Codexis and the key thing I want to convey today is though, as we shape the go forward plan, we are committed to prioritizing our time and financial resources on areas where we believe we have the strongest commercial opportunity and the greatest probability of success. With that, I will now turn the call over to Ross to discuss our financial results for the quarter.

Thank you, Kevin and good afternoon, everyone. Let me dive into our third quarter 2022 financial results, which are summarized here. Total revenues for the third quarter of 2022 were $34.5 million, a decrease of 6% from the prior year period. On a segment basis, $31.1 million in revenue was from the Performance Enzymes segment and $3.3 million was from Biotherapeutics. This compares to USD32.6 million and USD4.2 million for the Performance Enzymes and Biotherapeutics segments respectively for the prior year period. Product revenues for the third quarter of 2022 were $28.0 million compared to $28.7 million in the third quarter of 2021. The decrease was due to lower enzyme sales related to PAXLOVID, which were $12.9 million in the third quarter of 2022 compared to $18.9 million in the third quarter of 2021. Excluding PAXLOVID in both periods, product revenues grew 53%. For the first nine months of 2022, product revenue growth excluding PAXLOVID was 16%. R&D revenues were $6.4 million compared to $8.0 million last year. The decrease was driven by revenue declines across a number of large existing customers. Product gross margin for the third quarter of 2022 was 65% compared to 76% in the third quarter of 2021. The change was largely driven by changes in product mix, particularly from the decline in enzyme sales related to PAXLOVID, variations in prices for volume sold and higher shipping costs. Turning to operating expenses. Our R&D expenses for the third quarter of 2022 were $21.8 million compared to $15.2 million in the third quarter of 2021. The increase was primarily driven by increases in costs associated with higher headcount and salaries, as well as with higher expenses for facilities and outside services. SG&A expenses for the third quarter of 2022 were $13.5 million, essentially flat with $13.4 million in the third quarter of 2021. Headcount and compensation related expenses were higher than last year, but this was offset by lower legal costs. The net loss for the third quarter of 2022 was $10.0 million for a loss of $0.15 per share compared to net income of $2.2 million or $0.03 per share for the third quarter of 2021. As of September 30th, 2022, the company had $109 million in cash and equivalents. In addition, we have not drawn any funds from our $50 million ATM equity facility that we put in place in May of last year. I would like to spend a moment breaking down our financial results by segment, as outlined here on Slide seven. Revenue in our Performance Enzymes business decreased 4% to $31.1 million in the third quarter of 2022. Before the allocation of corporate overhead expense, operating income for this segment was $10.8 million in the third quarter for an operating profit margin of 35%. In our biotherapeutics business, revenue was $3.3 million and we generated an operating loss of $11.4 million, again before the allocation of corporate overhead expenses. Our operating losses in this business increased year-over-year as we grew and advanced our self-funded programs. Moving to Slide 8, we are reiterating our 2022 guidance previously issued on July 14 and reiterated on August 4th. We expect full year 2022 total revenues to be in a range of $135 million to $141 million. We expect product revenues to be solidly in the range of $112 million to $118 million, which includes approximately $75 million related to Codexis' proprietary enzyme used by Pfizer to manufacture PAXLOVID. We expect R&D revenues to be lower. We expect R&D revenues to be in the lower half of the range of $20 million to $25 million that we provided during our Q2 call. We continue to see softness in R&D revenues in both our Performance Enzymes and biotherapeutic segments. Gross margin on product revenue is expected to be in the range of 65% to 70%, consistent with prior guidance. We anticipate R&D and SG&A expenses combined will be in a range of $136 million to $138 million for the full year compared to the range of $136 million to $140 million that we disclosed in our last earnings call, due to continued expense reduction and prudence around cash burn. Also in Q3, we incurred approximately $1 million in non-cash stock compensation expense related to our CEO transition, which is included in the revised expense expectations that I just outlined. As Stephen noted, we expect our existing cash and equivalents, combined with our future expectations for product revenues, R&D revenues and expense management will be sufficient to fund our planned operations through the end of 2024 without any contribution from new financing. Now I'll turn the call back to Stephen.

Thank you, Ross. In closing, our ongoing aim is to focus, simplify and execute on what we're good at. As part of our refresh of the Codexis strategy, we're making strategic, organizational and cultural changes to refine our commercial focus, enhance both short and long-term revenue opportunities and concentrate our spends on programs where we are best positioned to win. Now we'd be happy to take your questions. Operator?

[Operator Instructions] Our first question is coming from the line of Brandon Couillard with Jefferies. Please proceed with your question.

Hey, thanks. This is Matt on for Brandon today. Appreciate all the initial color on the reshaped corporate vision that's coming together and look forward to some more details there over the coming months. But I guess maybe one for Kevin, lot of really good color in the slides on the enhanced commercial focus. Can you just maybe talk a little bit more about what's more actionable here in the near-term versus what might be more kind of mid to longer-term focus for you and the team? Thanks.

Sure. Nice to meet you, Matt. The near-term actual thing is really to focus on our existing customer base in terms of [technical difficulty] pharma in our pharmaceutical manufacturing, looking at additional products coming down the pipe. We can potentially add some value with our biocatalysis experience. The second thing is probably the focus on medium-size emerging pharma in order to create a backlog for future revenues in the coming years in terms of making sure that we have a pipeline of products coming down. We talk about this later on as well in terms of the 20 or so products that are in Phase II, Phase III development that could eventually turn into real revenue products for us in the near term.

Thanks, that's helpful. And then back in July when you noted a few different reasons for the reduced R&D outlook, one of them was around kind of this macro impact driving a slowdown in partnering activity and then cadence of kind of new client conversations on both the Performance Enzymes side and Biotherapeutics. I'd love to just kind of get updated thoughts on where those sit today, macro is still pretty choppy, those conversations kind of improving, worse, change, unchanged in your outlook for those as we end the year?

Yes, sure, Matt. It's Ross, I'll start and Stephen may add some color afterwards. But I think in terms of our -- the overall macro environment and certainly our expectations for our R&D revenue, it's really not changed materially from what we outlined several months ago. There were some fairly large partnering deals we were expecting to get this year that seemed to have been put off due to macro issues or specifics with the partner and don't send as much as change there. I would note that in terms of our expectation to have two years of cash runway at the end of this year, that really is reliant on deals we have in hand now and not anticipating any large future deals just to be conservative in our outlook.

Yes and thanks and Matt, Stephen here, I'd like to add a little bit of color to that which is the thing that we really are tracking and hang our hat on is the product revenues because product revenues have a very good margin and they can bring money to the bottom line. In terms of our R&D revenues, they really consist of fee-for-service work, which is kind of breakeven or reimbursement for shared expenses, which is actually negative margin. So it's not a driver of profit to bottom line. Also increasingly as we change our focus to decrease barriers to entry to partners, it becomes a less good metric for future revenues and future commercial sales. So we really want to focus on the product line as the most important part of our revenue story.

Thanks. And then one just last quick one, maybe, Ross, for you. On the three different therapeutic pipeline items outlined 7108, 6114 and then the Takeda gene therapy events that could happen in '23, are there any potential revenue milestones tied to those moving along the clinical pipeline? Thank you.

Potentially, there is a milestone or two we could get, Matt. I would say they're not overly material in size, but there are some potential milestone opportunities there.

Super, I'll leave it there. Thanks, guys.

Our next question is from the line of Chad Wiatrowski with Cowen. Please proceed with your question.

Hey, everyone. Congrats on the [beats], it's Chad on for Stephen Ma. Yeah, just in terms of the commercial efforts, I appreciate the prudence there. Can you give sort of a ballpark size of the commercial organization to date? And then maybe how much that expansion will be materially?

Sure. This is Kevin. Nice to meet you Chad. The commercial organization is around 20 or so folks today. We're looking at a modest expansion on the order of another, say, five to ten folks to be able to expand our reach, both in pharma manufacturing as well as life sciences. We're still working through that in specific areas, specifically as we look at how we're organized geographically, but it's not completely just a sales effort. It's also looking at our service organization, support other pieces of running a smooth and efficient commercial organization that we're looking at as well. So net-net, that's probably a good way to think about it.

Great. And could you speak to maybe the competitive environment that you're seeing in Biocatalysts, just namely there's some other partnerships I've seen in the space. Could you speak to how you guys are differentiated from a tech stack point of view? And then how sensitive that business is to an expanding commercial organization versus just sort of the tech selling itself?

Yes, it's a great question. So the short answer is that the recently announced deals really don't affect our short to medium-term perspective. We've already got relationships with the vast majority of the big companies. And for the short to medium-term, our trajectory is pretty well set. We've -- if you look back to 2018, we had 14 molecules in partnership in Phase II and Phase III for pharma manufacturing, seven of which have converted to be commercial products now. Right now, if you take the same cut, we've got 20 products in Phase II and Phase III. So we'd expect about 10 of those to convert over the next four or five years. So in terms of our sort of short to medium-term trajectory, those are in the bag already. Now, what's happening is that the big companies are either developing their own biocatalysis capability or they're partnering for it and it's becoming sort of a baseline capability for the big players. So that's why Kevin and team are so interested in looking towards the sort of more medium-sized companies where they have much more need of a technology like ours. Also we're really, really good at what we do because we've spent many years evolving these enzymes. And they tend to be in fairly narrowly defined families, such as keto reductase for instance, where if you've made one, it enables you to make the next one much more rapidly and much more effectively than if you are starting from ground zero. So we feel in good shape in the short-term, a well-placed provided we can increase our customer base to those other companies and be responsive. And I think that Kevin, you've been talking about a lot is actually lowering the barriers to entry, so we're very easy decision to partner with us. Because remember, these companies are taking the decision to go the biocatalysis route as they're moving into Phase II. So they're often relatively cash constrained if they're not one of the big players. So we have to -- that's one of the reasons I made the comment I did about R&D revenues not being a very good forward-looking indicator in the future.

Super helpful, yeah, congrats again. Thanks for the questions.

[Operator Instructions] The next question is from the line of Matt Hewitt with Craig-Hallum Capital. Please proceed with your question.

Good afternoon, thanks for taking the questions and for the strategy update. Maybe first up, one of the things I guess they didn't hear is the CodeEvolver platform. Is that something that you still intend to potentially license out? Or is this -- is it now going to be kept in-house and with focus on the commercial items that you listed out today?

So we don't have any plans and really don't need to do further CodeEvolver licenses right now. And our focus is on continuous improvement of that platform. The metrics that we can improve are things like our cycle time to do an evolution step, things like the footprint that you need to actually do that, so that we can be very responsive. So we think that the world has changed and now what people actually want is the enzymes and those specific deals. So we're not planning on further CodeEvolver licenses right now.

Understood. And then maybe regarding your -- one of the new focus items is actually producing and selling the kits. How quickly do you think you could ramp that type of a business up? Is that something we should be thinking about in '23? Or do you think it will take a little bit longer than that?

No, I think this is early stages and first ensuring that we understand what the key customer needs are in terms of this market. We've had some success as Stephen highlighted the DNA ligase with Roche as a success there and we need to be looking at the customer workflows here a lot more over the next couple of months to ensure that we know exactly what the need is. We can co-optimize sets of enzymes to be able to fit into full test kits. I think we're at the early stages of our strategy in terms of full test kits, but it is something on our radar as a key strategic investment going forward. So I think not necessarily near term other than continuing with some of our evolving and preparing of new enzymes for that customer set, but we want to make sure we really understand the customer needs before we dive headfirst into that in terms of full test kits.

Yes, one of the -- now having downplayed the importance of R&D revenue earlier, what I'm going to say is one interesting signal that we've got in the NGS space is the increasing number of R&D collaborations, we've got people testing our enzymes on their platforms, that kind of stuff. So we think we have real opportunity here and we're going to spend the next three to six months really nailing the go-to-market strategy because these are pretty significant investments if you choose to make kits. So we're not going to do that until we know it's the right way forward.

Got it. Maybe one last one and then I'll hop back in the queue. It sounds like you're deemphasizing the food and beverage to focus on the larger, more profitable markets in life science tools and pharma. But you've got an existing relationship with Tate & Lyle. How should we be thinking about that business going forward? Thank you.

So I'll answer the larger picture and then Ross you might want to talk about the specifics in terms of the expectations on Tate & Lyle. One of the lenses we're looking through is how big a lift is it to go from what we are extremely good at, which is inventing an improved enzyme to actually addressing a market. And there are synergies in focusing on particular areas. So we know how to do this in the pharma manufacturing space. When you move into things like food, it impacts the amount you have to make, the expression system you have to use, the kind of structure of the customer that you're trying to address, it's all really rather more complicated than just making the enzyme. And so what I'm saying is, when we move out of our sweet spot, we have to be super cautious that we understand the market that we're going for and just right now, it's about emphasis in the core areas of pharma manufacturing and life sciences.

Yes and I would just add, Matt, the food, industrial part of our business, it's about 5% of our revenue today spread across both R&D, as well as product revenue. You mentioned Tate & Lyle specifically, but that is an existing customer. It's a relationship that's kind of well established. There's some investment in support we give to that, but not much. So I would assume that, that status quo.

Got it. That's helpful. Thank you.

Thank you. I'm showing there are no further questions, I'll turn the call back to Stephen Dilly for closing remarks.

Well, thanks again and thank you all for joining us. Kevin, Ross and I are really looking forward to meeting with many of you in person, the investor conferences in New York and Nashville. So thanks for tuning in.

Thank you. This concludes today's call. You may now disconnect your lines at this time.