艾睿電子 (ARW) 2009 Q2 法說會逐字稿

Good day, and welcome to the Nu Horizons second-quarter fiscal year 2009 earnings conference call. Today's call is being recorded. For the purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, our statements today may be include certain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. Such statements are based upon, among other things, assumptions made with information currently available to the management, including management's own assessment of the Nu Horizons industry and competitive landscape. During the presentation, your line will be in a listen-only mode. (Operator Instructions). Now for opening remarks and introductions, I'd like to turn the conference over to Mr. Richard Schuster, President and Chief Operating Officer of Nu Horizons Electronics Corporation.

Good afternoon and welcome. I am Richard Schuster, President and Chief Operating Officer. With me here today are Arthur Nadata, Chairman and Chief Executive Officer of Nu Horizons Electronics Corporation, Kurt Freudenberg, the Company's Chief Financial Officer, Dave Bowers, President of Nu Horizons' Distribution Division, and Connie Chandler with our investor relations firm. Kurt will give an overview of the numbers for the second quarter of fiscal 2009. I will then give a brief market overview and synopsis of the industry and our company's performance, and then we will open the call to questions you may have. At this point, I would like to turn the call over to Kurt.

Good afternoon, everyone. Because of where we have been in the financial markets over the past few weeks, I want to begin by discussing our balance sheet and credit facilities. Our balance sheet is strong and liquid, with $204 million of working capital at a current ratio of 3.2 to 1 at August 31, 2008. Our day sales outstanding was 61 and our inventory turned 5.7 times on average. At August 31, 2008, our outstanding debt was $70 million on our US and Asian revolvers, and UK credit line. And we had an aggregate of $56 million available on all bank credit lines in the United States and Asia. Additionally, we had $9 million in cash in the bank deposits at August 31, 2008. The Company anticipates that its resources provided by its cash flow from operations, and credit agreements, will be sufficient to finance its operations for at least the next 12 months.

Turning now to the results for Q2 of fiscal 2009, net sales were $211,813,000 compared to $185,369,000 for the comparable period of a year ago, an increase of 14.3%. This represents a record sales quarter for the Company. Net income for the quarter was $192,000, or $0.01 per diluted share, as compared to net income of $783,000, or $0.04 per diluted share, for the second quarter of last year.

Overall, gross profit margin for Q2 of '09 was 14.6% as compared to 16.8% for the prior-year quarter. For the six months ended August 31, 2008, net sales increased to $411,965,000 from $360,601,000 in the comparable period last year, an increase of 14.2%.

Net income for the first half of fiscal 2009 was $1,347,000, or $0.07 per diluted share, compared to a net income of $2,471,000, or $0.13 per diluted share, in the comparable period of last year.

Overall, gross profit margin for the current six-month period was 15%, as compared to 16.8% for the year-ago six-month period.

The increased sales for the current three- and six-month periods are largely attributable to increased Asian sales and an increase in our systems business. A higher volume of lower gross profit margin business in Asian systems drove lower overall gross profit margins in fiscal '09 compared to the prior year.

System sales increased $14.5 million and $15.6 million for the three- and six-month periods ended August 31, 2008, compared to the prior year, due to an acceleration of orders for the products which Sun Microsystems is discontinuing. Sequential system sales are up $12.1 million. Sequential total company sales increased 5.8% when -- which came from the growth in Asia in systems business. Sequential gross profit margin is down 89 basis point due to the increased amount of low margin Asian systems business.

For the three and six months ended August 31, 2008, operating expenses as a percentage of sales decreased to 13.8% and 13.9%, respectively, from 15% and 14.8% for the respective three- and six-month periods. Operating expenses increased $1.4 million and $3.9 million for the three and six months ended August 31, 2008, compared to the same periods in the prior year.

The dollar increase in operating expenses resulted primarily from the inclusion of $1.7 million and $2.3 million of professional fees for the three and six months ended August 31, 2008, related to the SEC investigation titled, quote, the matter of Vitesse Semiconductor Corp., end quote, as well as the related internal investigation being conducted by the Company's audit committee. Management believes the audit committee's internal investigation is nearly -- nearing completion and consequently expects total monthly costs to decline by the end of fiscal 2009. In addition, the Company incurred severance costs during the second quarter of fiscal 2009 as a result of its previously-announced decision to consolidate its Melville, New York, warehouse into its expanded Mississippi warehouse. The closing of our New York warehouse is part of our ongoing focus to improve the efficiency of operations and reduce expenses. We expect to spend approximately $500,000 on severance and moving charges by the end of the fiscal 2009, and expect that this to provide approximately $1.1 million in recurring annual savings.

Finally, salaries also increased in our Asian businesses to support the increased sales.

For the three and six months ended August 31, 2008, interest expense decreased when compared to the comparable prior-year periods. Despite increased average borrowings to support higher sales, interest rates declined period over period which more than offset the higher borrowings. Our tax rate for the three and six months ended August 31, 2008, was 58.5% and 38.5%, respectively, compared to 59.3% and 48.8% for the prior-year periods.

The elevated tax rate for the second quarter related to tax exposure in our Asian businesses related to onetime assessments in India and Singapore. The Company restated its fiscal 2007 Form 10-K and fiscal first-quarter 2008 Form 10-Q due to an understatement of our taxes for all periods. Consequently, our effective tax rate for the three- and six-month periods ended August 31, 2007, is higher principally due to penalties and interest associated with amending our federal and state tax returns.

On a pro forma basis, excluding professional fees related to the SEC investigation, in the matter of Vitesse Semiconductor Corp., and related internal investigation mentioned above, and $295,000 in charges, primarily severance, related to the closing of our warehouse in New York, pro forma diluted earnings per share would have been $0.09 and $0.17 for the three- and six-month period ended August 31, 2008, respectively, compared to pro forma diluted earnings per share of $0.08 and $0.20 for the respective '08 periods.

Our fiscal '08 pro forma results excluded professional fees related to the previously mentioned Vitesse matter, and taxes, interests, and penalties related to our amendment of our prior-year tax returns.

As many of you are aware, on September 9, 2008, Nu Horizons Electronics Corp. acquired C-88 AS, a franchise distributor of electronic components based near Copenhagen, Denmark, as part of our strategic focus to expand our presence in the expanding markets in Europe. Pursuant to the terms of the purchase agreement, Nu Horizons paid $3.5 million in cash. The purchase agreement also provides for additional payments to the seller for a minimum of $500,000 up to a maximum of $3.5 million. The payment of any amounts in excess over the $500,000 minimum is contingent upon a team of certain earnings milestones by C-88 AS during the three-year period ending August 31, 2011.

C-88 AS had approximately $18 million in sales for the 12 months ended April 30, 2008. And it's expected to be accretive to our fiscal '09 net income. We believe the acquisition will enhance our global selling and support capabilities and position us for further growth within Europe, and enable Nu Horizons to enter the important Nordic marketplace. C-88 AS currently has sales coverage in Denmark and Sweden, with plans to expand to Norway and Finland in the near-term. Now, I'll turn the call back over to Rich.

The second quarter of fiscal year 2009 was a mixed one. We achieved record topline revenue during the quarter, and also recorded yet another quarter of record sales in our Asia Pacific operations, which continued to show strong profitability. Nevertheless, in the UK and the Americas, the slowing market began to impact us, particularly in July and August.

Regionally, sales were up 6% sequentially and 46% year-to-year in Asia Pacific, down 3% both quarter-to-quarter and year-to-year in the Americas, and down 3% quarter-to-quarter and 1% year-to-year in Europe.

Our systems business sales were up strongly, but much of the topline revenue growth in systems was driven by end-of-life programs in Sun Microsystems, which had a negative impact on our gross profit margin in the quarter. I'll comment further on this in a few minutes.

By region, we substantially improved our operating margins in the Americas sequentially, but our operating income decreased 39% from Quarter Two a year ago. In Asia Pacific, our operating income decreased 4% sequentially, but was up tenfold year-over-year. In Europe, we had an operating loss for the quarter, primarily driven by continuing investments in central Europe, along with the softness in the UK. In our systems business, our operating income was up 50% sequentially and up over 300% from the year-ago quarter.

Without a doubt, the most exciting news for us on an ongoing basis is the rapid growth and improved profitability of our Asia Pacific distribution operations. Our continued strong double-digit year-to-year growth is continuing, and we are bullish about our ability to continue to grow both topline and bottom-line contribution in the region.

We see more designs transitioning from both the Americas and Europe to Asia Pacific, as well as stronger local design activity in the region and improved penetration of Nu Horizons. We are gaining traction with suppliers that we signed over the past two years in Asia Pacific, and our line card is expanding there as well.

We experienced strong market headwinds in the United Kingdom, which negatively impacted our sales in Europe during the quarter. Central Europe was a bright spot, as we achieved yet another quarter of record sales and are gaining traction that we need to get to profitability in this critical market. During the quarter, Linear Technology extended our very successful partnership into Europe, franchising us in the United Kingdom, Ireland, Germany, Austria, and Switzerland. We have high expectations for this extended partnership.

We recently announced our next step in building a strong European presence with our acquisition of C-88 AS, headquartered near Copenhagen, Denmark, which is designed to support our expansion into the key Nordic region. We recently announced that both Xilinx and Linear Technology extended our partnerships into the Nordic region. We also furthered our Eastern European expansion and believe that we are now well-positioned in most major markets, continuing to gain share and build toward strong performance in the region. Eastern Europe is a highlight, where we are gaining position with the major EMS contract manufacturing players and expect strong growth over the coming quarters.

Within the Americas, we saw the benefits of our cost reduction actions of Q4 fiscal year 2008, but growth here remains an ongoing challenge. The overall market in the Americas is not growing and we do not see prospects for meaningful market growth over the next several quarters. However, we are focused on several opportunities to gain share in the region, and we are beginning to see a positive contribution from our new suppliers, such as Atmel and ON Semiconductor, which we signed approximately one year ago.

In addition, we continue to see growth in design metrics, which have had a substantial positive effect in driving our revenue and profitability in the Asia Pacific region.

Finally, our systems business saw strong topline growth. This was primarily driven by substantial end-of-life sales for Sun Microsystems servers. These sales had a minimal positive impact on our overall profitability during the quarter, but did negatively impact our gross profit margins, which were effectively flat in all regions, excluding these large low-margin systems sales. Over the next several quarters, our systems sales of Sun products are expected to be constrained by this Q2 sales activity, since these customers are not expected to procure additional systems until they have completed redesigned to replace the end-of-life servers.

On a positive note, our efforts to reduce our go-to-market strategy in our systems business have borne fruit in our bottom-line. Although we do not yet see strong recurring topline growth in this business, our increased margin business with mid-tier customers with flat costs have resulted in driving a business with sustaining operating margins now approaching 4%. While we have not yet seen traction from our IBM engagement, the opportunity pipeline is encouraging and we expect to see this as a growth driver for us beginning early in the next fiscal year.

Overall, our distribution design activity, which we believe is a key differentiator and an important value add for our customers, continues to be strong, in spite of the market softening. Both new opportunities and design win revenue increased strongly during Q2. This is a result of our strength in [wine corps] throughout the globe as well as our increased focus on both the size of new design opportunities that we engage in and the breadth of Nu Horizons content in these designs.

Total design win revenue in the second quarter of fiscal 2009 increased 19% to $50,593,000 compared to $42,516,000 in the prior-year period. Design registrations increased 14% year-over-year. For the first six months of the current fiscal year, design win revenue increased 15.5% to $97,070,000 from $84,079,000 from the prior year. The number of design registrations increased 45% compared to fiscal 2008.

NIC Components Corp. sales and gross profit for the second quarter increased slightly year-over-year and sequentially. NIC sales in Europe were up 18% year-over-year and 10% sequentially. NIC Asia sales were up 19% year-over-year and 11% sequentially. NIC sales in North America were down 13% year-over-year and flat sequentially. We see continuing weakness in North America for passive components as more customers migrate to Asia, and competition for the remaining business intensifies.

A very positive trend is that our higher margin specialty business in magnetics is up over 20% year-over-year. In addition, our core business of aluminum electrolytic capacitors is up almost 8% over last year. These two product categories historically have had more stable margins than our other commodity passive components and we believe that they have a higher potential for topline growth.

There is some overcapacity in passive components, but raw material prices are increasing and forcing prices to stabilize or increase. We believe that while topline growth will be challenged, margins should be relatively stable. Our strategy for NIC continues to be the expansion of specialty and higher reliability products. These products will target customers in the medical, security, energy, and smart-home markets that are expected to have continuing growth potential.

In closing, it is not possible to predict the impact that the current economic environment in the US and globally will have on our business going forward. In the months ahead, we will remain focused on maximizing the opportunities we have to expand our business globally, while at the same time looking for opportunities to increase the efficiencies of our operations where we can. Given the diverse end markets in geographic regions we serve, we believe that we are in a reasonably good position to withstand these uncertain economic times. Thank you, and now I would like to open the conference call to any questions you may have.

(Operator Instructions). Matt Sheerin, Thomas Weisel.

This is actually Alberto Mann calling in for Matt. So maybe we could start with the gross margin. The design win revenue was up 19% year-over-year, which is very strong. But obviously, the margin was down because of some of these end-of-life products and the mix shift towards Asia. Can you maybe talk about or quantify the amount of end-of-life products that were sold in the quarter, and the approximate gross margin, just to get a sense of what the core business was actually doing? Because it seems like that's not really a recurring source of revenue.

Correct, it's not. The end-of-life purchases in total were in the $10 million to $15 million range. And the margin on those was substantially lower than our typical systems margin. So it's low to mid single-digit margins.

That's helpful, thanks. And that business, the systems business, should be probably down sequentially because these products are going to be going away, next quarter.

That's correct. The customers -- they were accelerated purchases, so the customers that procured those won't be buying those same servers over the next few quarters, at least.

And then, just looking bigger picture on the core distribution business, can you talk about the book-to-bill, maybe regionally, what the order patterns have been? I know you mention some softening in July and August in the Americas and Europe. Maybe you could discuss a little bit of the demand trends there.

So generally speaking, book-to-bill within all the regions was approximately 1 to 1 for the quarter. Really nothing much above or nothing much below through the regions. We dipped slightly below 1 to 1 in August, but it was very nominally below 1 to 1. It was still effectively the same.

And quarter to date, can you maybe discuss a little bit about if it's changed significantly since then, or is it sort of just moving along at that same rate?

So we don't give guidance, of course. About the only thing that we can say quarter to date is September -- September was a reasonable month. So we did not see a strong decline in order activity during the month of September. And book-to-bill was slightly under one.

And then, in Europe specifically, it seems to be down year-over-year, and I think maybe currency had something to do with that. But can you talk about some of the organic trends in that market, and what we should expect to see, based on some of the currency trends as well? And will you see some benefit on the SG&A line as well from the currency going down? I know you are going to see sales probably fall organically. But, you know, will you see some benefit on the SG&A line?

We will see benefit in SG&A. Salaries are paid in local currencies. And a substantial portion of the business is transacted in US dollars, depending upon the market. In Germany, it's primarily transacted in Euros. In the UK, a substantial portion is transacted in US dollars. And in the Nordic, the new territory, it's primarily dollars. So we will see some beneficial impact from those factors offset by Euro trading in Germany.

From a general market, what we saw during the quarter, Germany, Central Europe, we continued to see growth. And it's tracking more or less the way we would want it to track in order to get it to break even in Germany. And then, UK -- UK, we saw a substantial softening, in particular in July and August. And we have some consolidated businesses run out of the UK. So we saw growth in our EMS business, which is primarily an Eastern Europe activity. And slightly encouraged, in fact, by the penetration in Eastern Europe as we're gaining traction there. But UK core business was down pretty substantially, and we don't see short-term recovery in that business.

And then, in terms of the C-88 AS acquisition, can you maybe give the sales -- were those sales -- those were primarily conducted in dollars, you're saying?

Yes.

Can you maybe give some of the margin targets? I guess the reason I'm asking about that is with the earnout you could pay up to 0.4 times per sales. And that's well above what your stock is trading at and other distributors are trading at. It seems to be a pretty significant premium. So, just trying to figure out this is a higher margin business, and whether it's going to be accretive, and maybe you could talk about that.

Keep in mind, you're basing off the $18 million base sales they have now. But obviously, we are expecting to add lines there, so that sales should -- similar to what happened with our UK acquisition -- will increase, we believe, pretty quickly.

Okay. I'll step out and get back in the queue. Thanks.

(Operator Instructions). Elliot Glazer, [Dupa Squire].

Hello, gentlemen. The product relationship with IBM, what products are you carrying?

We're carrying servers and storage.

Which servers? Because they have some outstanding growth items, like the Z series servers, and they have some that are not growing so fast.

So the Z series is included.

So it's a mixture.

It's a -- correct, it's a mixture of servers.

And what about the lower-level microelectronics, what are you carrying?

Microelectronics, we carry IBM microelectronics in Asia Pacific region (multiple speakers)

Which products?

PowerPC and related products. That includes set-top box --

Would you repeat that, please? Somebody coughed.

PowerPC, microprocessors, and their set-top box ICs.

Okay. When would you expect the volume here to get up to what we would consider critical mass, something you could earn a living on?

On IBM?

Yes.

From the server and storage business, we expect to begin to see meaningful growth in the beginning of FY '10.

FY '10, that would be March of '10?

Correct. March of '09. March of '09.

Great. Dave, thanks a lot.

Alan Seymour, Columbia Management.

I would be kind of curious if you could flush out the acquisition and what you're thinking about there as obviously there is some line extensions going to be. But I'm also curious, it's in Denmark, but I presume that that means that you're going to look at Finland, Sweden, as this is a jumping-off point for other parts of the Nordic area. Is that correct?

Correct. It is in both Denmark and Sweden, as we speak. And we will use that as the basis for expansion into Norway and Finland.

And then, maybe you could talk a little bit about -- you're talking about the US being a little slower, but Eurasia being a little faster. I would be kind of curious as to how you handle the design part of things, where -- obviously a lot of some design work gets done in the United States, but manufacturing gets done over in China. How you handle that, and can you get design in here but get -- the parts delivered over there when things get manufactured? How do you think about that?

So I love that question, in fact. We have internal revenue and margin sharing between the businesses. So it's internal, it's not reflected.

From a financial standpoint -- are you're asking for a business standpoint or a financial standpoint?

No, I'm really asking how you handle it for a business standpoint. I mean, presumably, if you can -- the more design in wins you can get, whether it's here or over there, where you can get volume, I mean, it's presumably to your benefit. And --

Correct. So without sharing the secret sauce, we do share credits back to the design locations and the individuals that are driving those design activities. We do provide compensation, as well as revenue and margin credit to the divisions, which allow us to staff accordingly so that we can staff properly to support design activities.

And that question is very relevant in particular for the Americas market and the UK market. We do it in a manner that's consistent with the way a lot of suppliers go to market, in fact. So, we made the comment here for the first time in the script that our North America design activity was driving revenue in Asia Pacific. And it's now becoming meaningful revenue, significant revenue, and it's having a very favorable impact to the profitability, to our growth and probability in Asia Pacific. Both design activity in the Americas, primarily the US, and design activity in the United Kingdom are reflected in those numbers.

We also have an excellent system that tracks our ability to attract business from one geographic location to another.

And that's the backbone -- that's the system that we started developing almost 10 years ago, and we believe that we are absolutely best in class within our industry at tracking the design from inception at a disparate OEM or design entity as it goes through development into production. And the process that we have for tracking that business and closing it, even if it's halfway around the world, is second to none.

Okay, thanks.

Mike Neary, Neary Asset Management.

A couple questions. What blended rate are you paying right now on your financing?

One second, I actually have that. It's approximately 4.9%.

So you're going off the prime?

Because -- we actually go off above LIBOR and prime. In the past, it was more LIBOR than prime, but because of what's happened to LIBOR in the past couple of months, particularly the past month, we have a little more prime than we do LIBOR. There was a point, which was unusual, where LIBOR was higher than prime.

In terms of the SEC investigation, why do you think that is wrapping up?

The portion -- it's divided into two parts. One is the SEC's questions themselves, and we don't know when they're going to be done asking questions. We just aren't privy to that. The second part is the internal investigation which our audit committee has put under way, and that is nearing completion. And the reason we know that is our audit committee obviously is part of the Board, so we have some indication from them that they are getting near completion and should come to an end soon.

And is there any thing you can do to finish up the SEC piece? Have you had any discussions in terms of settlements or anything like that?

You really -- there's nothing else that -- right now, it's questions and requests for documents. There's nothing else that we need to provide for them. It's in the matter of a test, not in the matter of Nu Horizons. So unless we hear otherwise from the SEC, we just answer the questions when they arise.

And in past cycles, you have done a very good job of liquidating inventory somewhat seamlessly. How are things going to be different this time, or are they?

So -- there are a lot of things we don't know about the speed of the downturn. But our ability to liquidate inventory, as you call it, our ability to sell or return inventory should not be substantially different. Substantially, all of our inventories are covered by stock rotation privileges. And that which is nonstandard (technical difficulty) that is covered by noncancelable, nonreturnable agreements with our customers.

And in terms of your accounts receivable, can you talk about those and the health of those?

Receivables are actually in fine shape, we haven't seen any downturn at all. It's pretty much status quo. The turn -- I'm sorry, the DSOs are pretty typical. We see the higher ones in Asia because that's the nature of the business in Asia. And the lower DSOs are here in the US. So there's no unusual trends there. Our agings are in line with where they need to be, and in course with the current economic times. We're watching it very closely.

And my next question is about the stock, which is sometimes different than the business. You know, the stock is currently under $3 and we have tangible book of near eight. For the price that we're going to pay for C-88 AS, we could buy back 10% of the entire company. When are we going to do a stock buyback, and/or when are you guys going to buy stock yourselves?

That question is currently under Board discussion. So we are addressing that, and obviously any decisions will be communicated when appropriate.

For the price of the stock, I'd encourage doing it. If you're uncomfortable with the debt level, you could even liquidate your top -- your bottom 10% of business, generate $20 million extra cash, and buy back 20% of the company. So I think that would be worthwhile to you from a standpoint of (multiple speakers)

It's definitely in discussion. That's all we can really say right now.

(Operator Instructions). Larry Karlin, Flight and Partners.

Gentlemen, Larry here. Just noted, the nonrecurring costs, for the most part, should be out of the way by the end of fiscal '09. Also, I have been reading from an economic service which I think is probably the highest price and best rated in the country that they expect a pickup in the economy by next spring. From what you said about business, it makes me feel that '10 for us could be a hell of a year. Any comments on this [path]?

As far as the costs from the investigation, as we've said, we know that the internal investigation is winding down. As far as the SEC's investigation, that we're not privy to that information.

Right now, you know, based on what's going on with the economy, the visibility is not great. But we certainly feel that based on our -- based on what we have done with the Company, with our lines and our investments and watching expenses, we will be in a good position for the recovery. I don't think we have any question here about that. We're very confident that we will get through this and we will be in a strong position to benefit when the economy does turn around.

One other thing. Do you check with the SEC attorney from time to time, [leave] Vitesse, [just as he is doing]? I understand years ago you couldn't talk to them, but now you can check with them to see what the status of some sort of suits are.

The status of suits with regard -- with regard to Vitesse?

Yes, with regard to Vitesse.

We do have attorneys that do interact with the SEC, but it's more to answer questions that come up, as they arise.

But they don't tell you how far they've progressed towards any [in your] situation.

Well, the issue is that we're not really privy to that information as a company because we're not the ones being investigated, it's Vitesse. So we can't inquire about that company since it's a separate company.

Okay, thank you.

Matt Sheerin, Thomas Weisel.

It's Alberto Mann again. Just wanted to go back to Germany. We didn't actually talk about whether you thought you could still break even in Germany by the end of fiscal '09. Is that still a target you guys are going to stick to, or -- ?

So there's a big question mark now, and that is what impact the macroeconomic climate that we're operating through has. And it will have an impact in Germany as it has in other parts of the world. And we don't think it's going to be a positive impact. So we can't, just -- (multiple speakers) can't answer that question directly just yet. We need a little time to work through it.

Rich, on the NIC business, could you talk a little bit about the pricing environment, how that's been, and what you're hearing about industry capacity expansion plans from some of your Asian competitors?

We've heard that capacity has been disappointing year-over-year for this time of the year, which is generally Christmas production. So we think capacity is underutilized. We've all seen -- well, most of us have seen commodity prices go up, precious metals, that are used, materials, raw materials used in production of capacitors. So at this point, we have seen prices definitely stabilize. Some prices are even up a little bit.

Whether or not the slowing market will cause some panic selling, I can't predict. But in general, we see prices stable to up slightly. Capacity is off, but we're hearing and seeing that the manufacturers of components are walking away from business rather than taking business at a loss.

And then, just two quick questions for Kurt. What's the tax rate we should expect going forward for the second half of the year?

The going forward should be in the low 30s.

And then, I don't know if you did, but can you maybe break out the spend of the internal investigation versus the spend on the SEC investigation on a quarterly basis? Roughly speaking, is it (multiple speakers) 50-50, or --

Unfortunately, it's combined, the billing has been combined from the attorneys, so it's just something that we never thought of breaking out. And it's billed as a combined number. I'm sorry, I can't break it out for you, though.

And then, the last question I had was on leadtimes and cancellations. We've heard that visibility has sort of gotten pretty bad out there. Have you seen leadtimes come in even further, and have you seen any customers involved in cancellations?

We have seen no change in leadtimes to this point. But we're dealing with the situation that's a couple of weeks old. So I think it's going to be a little bit, another week or two, before we see any changes.

Related to cancellations and reschedules, we're hearing -- so it's more anecdotal -- increased level of cancellations and reschedule requests. But again, it's a little early in the cycle.

Yes, we haven't, on the passive side, we have not seen anything dramatic in terms of pushouts or cancellations at this point.

Okay, thank you.

(Operator Instructions). At this time, we have no further questions. I would like to turn the call over to Arthur Nadata, Chairman and CEO, for closing or additional remarks.

I would like to thank all of you for participating on this conference call. We look forward to our ongoing dialogue with you in the months ahead, and hope that we have the opportunity to talk to you over -- on the next conference call. Thank you all very much and have a good day.

Thank you for attending. Once again, there will be a replay of today's conference available beginning today at 7:15 PM Eastern and will be available through July 16 by dialing 888-203-1112 or 719-457-0820, and using passcode 884-5545. Once again, thank you for attending and have a great day.