庫力索法 (KLIC) 2011 Q2 法說會逐字稿

Greetings, and welcome to the Kulicke & Soffa second fiscal quarter 2011 results call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Elgindy, Manager of Investor Relations for Kulicke & Soffa. Thank you, Mr. Elgindy. You may begin.

Thank you, Claudia. Good morning, everyone, and welcome to Kulicke & Soffa's second fiscal quarter 2011 conference call. For those of you who have not seen the results announced this morning, they are available in the Investor Relations section of our website at kns.com. An audio recording of this entire conference call may be accessed from the Kulicke & Soffa website, for a limited period of time.

In addition to historical statements, today's remarks will contain statements relating to future events and our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a complete discussion of the risks associated with Kulicke & Soffa that could affect our future results and financial condition, please refer to our SEC filings, particularly the 10-K for the year ended October 2, 2010, and our other recent SEC filings.

For our call today, we are joined by Bruno Guilmart, President and CEO; Jonathan Chou, Senior Vice President and CFO; and Christian Rheault, Senior Vice President of Business Operations. I would now like to turn the call over to Mr. Bruno Guilmart. Please go ahead, Bruno.

Thank you, Joe, and thank you all for joining our call today. We are pleased with our financial performance in the March quarter. We achieved revenue of $206.7 million, which was significantly above the high end of our guidance, and about 39% above our prior quarter. At the height of (inaudible) reflects strong demand from both our ball and wedge bonder equipment line. We continued to benefit from the rapid pace of the growth of copper conditions. Importantly, our flexible and efficient manufacturing model enabled us to ramp up production and meet customer demand.

We earned $43.6 million of operating income, $39.9 million of net income, and achieved 47.9% of gross margin. While increasing ball bonder business was across a wide range of customers, demand from our OSAT customers was [particularly] strong, representing 80% of total ball bonder machines shipped. From an application standpoint, approximately 71% of our ball bonder shipments we have sold as copper capable bonders.

With respect to copper, we [continue] maintaining our leadership position by operating the best equipment and tool solutions available in the market, in terms of process capability, (inaudible) [ship], and overall turnkey solutions. We have started to ship a relatively large volume of our newly [released] IConnPS pro-copper ball bonder and our CuPRA3G copper capillary products. The success of our copper capable solutions assumes our customer continues to derive from [incremental] copper capability and highlights K&S leadership in this significant transition.

In addition to copper, we continue to benefit from ongoing replacement demand from customers ordering our latest generation of [gold alloy ball] bonders, which enable our customers to handle the latest leading technology in terms of bond pitch and ball size. Moreover, we are seeing a significant ramp of our large bondable area-configured machines. This option is available on all our power series models, and allows our customers to gain added efficiency and to reduce the cost of packaging. We also achieved record shipments in our wedge bonder equipment line in the March quarter, with nearly 20% increase in revenue over the December quarter. This increase was led by higher sales from the Power Management segment, along with higher demand in the hybrid and automotive markets.

We are pleased to report that we have nearly the completed the transition of our wedge bonder manufacturing to Asia. While I hope to better leverage our Asian-based manufacturing facilities and centralize [super chain] management to enhance our competitive advantage. As a result, during the June quarter, we anticipate approximately 90% of wedge bonders will ship from Asia, with a small amount of legacy equipment expected to remain in the US.

Finally, we continue to execute on several strategies and technical initiatives, as we work to mitigate [relativity], improve profitability, and ensure our long-term growth. As part of these efforts, we have transitioned most of our corporate business and operations management to our new Singapore headquarters. We will continue to (inaudible) these centers of excellence around the world, [active in] supporting our new product development efforts and long-term growth strategy.

Before turning the call over to Jonathan, I want to express our deep concern for the people of Japan. The country has gone through a [devastating] period of events. Our thoughts are with the people of Japan. We have a small group of dedicated sales and services employees working in Tokyo, who along with their families are safe and have returned to work. With that said, our revenues in Japan and our (inaudible) annuity of our full sales over the last two years. At this time, we do not anticipate any significant impact to our supply chain or our business. I will now turn the call over to Jonathan Chou for a more detailed review of the March quarter. Jonathan?

Thank you, Bruno. My remarks today will only refer to GAAP results. On today's call, I will compare the March quarter to the December quarter. Net revenue for the quarter was $206.7 million, up $57.9 million, or 38.9%, from last quarter. The net revenue increase was driven by a $49.8 million increase in ball bonder equipment and a $7.3 million increase in wedge bonder equipment volume.

As Bruno noted, ball bonder unit sales were weighted towards OSAT, which comprise 80% of our ball bonder shipments. This increased from the December quarter, when OSATs were 57% of these shipments. Gross profit was $99 million, up $26.8 million from last quarter, and our gross margin remained strong at 47.9%. This strong gross margin performance was due to our continued focus on managing our product mix, including volume growth in new products such as pro-copper and our large bondable area of offerings. With our wedge bonder production shipping to Asia this quarter, we anticipate some additional benefits to our equipment gross margin.

Operating expenses were $55.3 million, up $5.3 million from the December quarter. The higher costs were primarily due to employee incentive payments, due to strong revenue and our annual merit increases. With an operating margin of 21%, we generated $43.6 million in income from operation, almost double of previous quarter. Looking ahead to the June quarter, we estimate total operating expense will decline slightly, to $52 million. Of this $52 million, roughly $36 million represents our fixed component, and the remainder our variable component. For the June quarter, our variable component is projected to equal about 6% of revenue.

Our tax provision for March came in at $1.9 million, with a year-to-date effective tax rate of 11.2%. For the remainder of the fiscal 2011, we continue to expect an effective tax rate between 10% and 15%. Looking past 2011, we anticipate our long-term effective tax rate to improve to 5% to 10% level. Turning to the balance sheet, we generated $78.2 million of cash flow, ending the quarter with total cash and investments of $281.8 million, a 38% increase from December. Working capital-- defined as accounts receivable, plus inventory, less accounts payable-- decreased by $23.6 million to $170.5 million.

From a DSO perspective, due to change in customer and product mix, our days sales outstanding ended at 71 days. With respect to inventories, our days sales inventory decreased by 19 days to 69 days, as our volumes increased over last quarter. Our accounts payable days increased by 14 days to 63 days, due to increased purchases near the March quarter-end to support our June quarter's outlook. This concludes the financial review portion of our call. I will now turn the discussion back over to Bruno for the June quarterly business outlook.

All right, Jonathan. Looking forward to the June quarter, we expect our overall business to remain strong. We expect our ball bonder business to continue to benefit from our technology leadership, from the gold to copper wire bonding transition, from the replacement in older-generation products, and from further strengthening of our OSAT customer demand. As for our wedge bonder business, we anticipate it to remain strong. Overall, we expect our June quarter revenues to be in the range of [$255] million to $275 million. This concludes our prepared remarks. Operator, we will now be happy to take any questions.

Thank you. (Operator Instructions) Our first question is coming from the line of David Duley with Steelhead. Please state your question.

Congratulations on a nice quarter. My question -- first question is on gross margin. In the current quarter, your gross margins were relatively flat on a big spike in revenue. And usually, the mix would drive the gross margins down. So, I'm wondering why gross margins were so strong in the current quarter, and why you're predicting them, I think, to be up going forward?

Hi, David. This is Bruno. If you remember what I've mentioned during the last call, I said we put a lot of effort in place to basically optimize our cost of goods sold, so there is some benefit coming from that. As I have mentioned in the prepared remarks, we've started to ship a fairly large number of the pro copper ball bonder, which tend to have a slightly better margin than our standard ball bonders.

And also, we've almost completed the move of the wedge bonder from California to Asia. So, you should take all that into consideration. I know I had a lot of questions about margins in the last quarter. And you're right to be (inaudible) -- when the ball bonder business is going up fairly significantly, it tends to dilute the (inaudible) overall margin. But with all the action we have taken, we have been able to manage fairly healthy gross margin, essentially flat versus the previous quarter.

And the move of the wedge bonder business to Asia, could you give us an idea of how much of a gross margin pickup you are seeing from that event?

No, we won't disclose that. But, again, there is a lot of benefit of having now basically one central site for manufacturing. As you probably have read in an earlier announcement we've made, we have now the Senior Vice President of Operations based in Singapore. We have also, effective May 1, also the VP of Supply Chain -- Worldwide Supply Chain now based in Singapore. So, we are really, from an equipment perspective now, operating out of two factories -- one in Malaysia for subsystems and Singapore, and that give us, obviously, the benefit of scale and some level of operating leverage.

Okay. And do you have an idea of what you think your market share was in 2010, and perhaps of the overall bonder marketplace? And then, maybe an idea of what you think your copper market share is?

I will let Christian, our Senior VP of Business Operations, answer the question. And we do -- there is some (inaudible) data available that he can give you.

The deal right now, David, is -- it's Christian. The deal right now shows that we're -- if you include all of our bonder products, both ball bonder and wedge bonder, we're in the mid-50%s to high 50%s market share. We probably gained, based on DLSI and also Gartner, and then they [put it at] between 5% to 10% of market share from 2009 to 2010 calendar year.

And do they break out what copper is at this point yet?

No, there's no breakout of copper.

No, there is no breakout. That's -- (multiple speakers) our estimates are, we pretty much dominate the space.

Okay. One final thing from me. I was just curious what your current lead times are. Thank you.

I'm sorry, our current lead times?

Yes.

They are in the 12-week frame. (multiple speakers)

So, they've been flattish this quarter -- or that's where I was going next, is what direction.

[By managing, we are obviously beating] -- that's the -- I would say, one of our strengths in our flexible manufacturing model. We've anticipated the demand. We've added a fair amount of contract workers. And so, therefore, we work very closely with our suppliers and, therefore, we are managing our lead time to be essentially flat versus where they were last quarter. And they should be about the same in the current quarter.

Thank you.

Our next question is coming from the line of Krish Sankar with Bank of America Corporation. Please state your question.

Hi, Bruno. A couple of questions -- to clarify, the flattish gross margin in March, that was due to manufacturing issues, not because of product or customer mix. Is that right?

I'm not sure I get you. You said manufacturing issues are not because of customer mix? What did you mean by that?

Manufacturing conditions, not because -- you had a very high mix of OSATs in March.

Yes, so -- the point is that -- well, it's both. It's both manufacturing and also mix, as well. As I've mentioned in terms of revenue, our wedge bonder line increased 20% quarter-on-quarter, okay? And as we've discussed before, the wedge bonder, specifically, enjoys higher gross margin than our ball bonder. And we started to ship fairly significant volumes. And when I say fairly significant volumes, [are 200s] -- are the pro copper ball bonder, which also benefit from the higher gross margin. So, it's a combination of both -- of optimizing our manufacturing and supply chain, and also favorable product mix.

Got it. Got it. Okay. And the strength in the June quarter that you're seeing, is it predominantly from ball bonders, or are you seeing any pickup on the LED side of the business?

It's prevalently coming from the strength of -- again, I said, the wedge bonder, we continue to be strong, the ball bonder will continue to be strong, driven primarily by the OSAT business. We don't foresee any (inaudible) due to strength in the LED space.

And what do you think the mix of OSAT is going to be in June?

Again, we'll disclose that number once we've done the quarter.

Okay. And in March, what percentage of the revenue of your ball bonders is from memory customers or from memory-related applications?

(Inaudible) Christian, do you have that? It's not a huge number.

No, it's not. I'll come back.

Yes, we came -- [we came full of our goal] (inaudible). It's a fairly small number.

Got it, got it. Okay. And then, how many (inaudible) 10% customers are there in March?

Two.

Two. Okay.

The usual suspects.

And a final question from my side. Are we still -- is it fair to assume that your manufacturing transition you're doing for the different products, should it be completed by September or December quarter of this year?

It's pretty much done, as I've said. If you heard my prepared remark, I have said that 90% of our wedge bonder products manufacturing will be coming out of Asia. What's left over is, we actually -- we are not going to transfer it to Asia, because these are old equipment that we (inaudible) per quarter, that's really has -- it's really not meaningful to go with the hassle of transferring the manufacturing of these products to Asia. So, in essence, what you can say is that basically, we are pretty much done with our entire transfer of our manufacturing to Asia, effectively at the beginning of this quarter, for all our equipment and, as well, also, [expandable to] (inaudible).

Got it. And then, a final question from my end, Bruno. So, now that you're pretty much done with your gross margin improvement plan, is it fair to assume that the next leg of this cost restructuring would be to focus on the OpEx? Or should we start seeing that -- I mean, is that part of the benefit you're seeing in June, or is there something down the road? Thank you.

Well, I mean, I think Jonathan maybe can comment on the OpEx. But as you know, we have a fairly large portion of our OpEx, which is a valuable portion of how we do in our business, which is the incentive payments as well as the sales commissions. But maybe, Jonathan, you want to add some color on that?

Sure. If you look at our OpEx, if we compare it to last quarter, it was $50 million in terms of the GAAP OpEx level. And this quarter, we ended at $55 million. So, overall, this is actually a tribute to the fact that we had higher revenue; higher ICP -- incentive plan; and also, there's a one-time mark-to-market in terms of some of the equity compensation side. So, I think we have the OpEx pretty well managed at this point in time. Obviously, we'll be always looking for additional efficiencies as we actually grow in terms of scale. So, we'll be looking at that, and maintain that kind of fixed and variable portion, as we mentioned, with 6% of the total revenue.

Thanks, Jonathan.

Christian, the number for memory, has that been (inaudible)? (Inaudible) (multiple speakers)

Our next question is coming from the line of Tom Diffely with D.A. Davidson. Please state your question.

Good afternoon. First, just wanted a clarification. So, you said that OpEx next quarter is expected to be around $52 million, which is down $3 million, despite a 30% increase in revenue?

That's correct.

Wow, okay. All right. And then, looking forward, there's a fixed variable portion plus the 6%, is that how you look at it, kind of on an at-year basis as well, just with revenues going up and down over time?

Yes, you can say that. Then, obviously, we can -- you can target that as you model it. But obviously, it's going to be around that.

Okay. And how about a little update on the die bonder business? Has that gotten any more momentum?

So, the die bonder business, we are -- basically, have a number of customers in qualification. It is, I would say, progressing probably a little bit slower than our expectations. But again, remember that our die bonder offering, it's really a high-end, high-accuracy, high-throughput product that address, I would say, only a portion of the [turn], more the high-end equipment, sum of the overall die-bonding business. So, this continues to be an area of interest. I think we've made some progress, in terms of entering the market. But we are looking at, I would say, other options, if you want, to potentially increase our market share in that space.

Okay. So, more of a growth driver in the out years, then.

I'm sorry?

More of a growth driver in the out years, then, than versus this year?

That's correct.

All right. And then, finally, when you look at the overall transition to copper wire bonding, where do you think we are as an industry? The OSAT guys talked about getting us to 30% in the next quarter or two. But I'm just wondering, as an industry, where you think we are today and where we might go in the next couple years.

I'll let that to Christian to answer that question.

Hi, Tom, this is Christian. It -- everybody's trying to find out where we are in the cycle in the copper transition. One thing that we know is, it's in a bit of (inaudible) right now. We think that most of the products will convert to copper, when we look at the industry, starting mostly in the [subcom] world and now in the [fab less] companies. And now, it's starting to migrate into other markets, with US and European customers, as well as even automotive, which is a much more sensitive market.

We think that -- and I'm sure that you read the (inaudible) [earning and notes]. And basically, [they are trying impressively to giving] close to 50% of their outputs in copper before the end of the year. So, if you add up all these numbers, we're still seeing -- it's difficult to give an absolute number, but we still think we're in only the first phase of copper transition. We believe that it's only -- still in the -- if you would put in three phases of one-third, one-third, one-third, we're definitely still in only the first phase of that transition, and we believe that there's a few more years in front of us till that transition will be completed.

Great. Okay, thanks for your time today.

Thank you.

(Operator Instructions) Our next question is coming from the line of Pranab Sarmah with Daiwa Capital Markets. Please state your questions.

Hi. Thank you for taking my questions. Congratulations on good quarter and solid guidance for following quarter. I have couple of questions, Bruno. First one is on your wedge bonder. Can you give us some estimate like what would be the total market size of the wedge bonder, and what is your market -- what is your share in that particular market?

I don't have firm numbers on top of my head. But what I can tell you is, we believe we have over 60% market share in that business.

Predominantly, customers are battery makers and (inaudible)?

Well, two type of -- mostly, there are two drivers -- traditional power management semiconductor companies that -- so, it's all type of semiconductors that goes into energy-saving applications, power supplies, and so on. And the new emerging market for us is -- which, speaking of speed, is hybrid application -- hybrid (inaudible), and also (inaudible). But so far, the large -- the majority of the business is in power [semiconductor] applications.

The next one is on your LED equipment side. Are you going to expand your product range on that LED -- for LED equipment? If so, what are the new product that you would like to introduce? And have you seen any (inaudible) LED business -- LED equipment business, I think it has been a bit weak for the last couple of quarter.

Yes. So, for the LED business right now, we are focused on ball bonders, okay? And we have three variations of ball bonders available for a specific market, and we tend to address more the higher end of the market. Okay? And we are not -- right now we do not have in our plans anything to address equipment beyond the ball bonding business, okay, as of now. Okay? And as for your question, you've seen -- you've read, like all of us, reports on the LED market, it's a little bit soft. And as I've said in the previous call with you, there is more inflow capacity in the ball bonders than there is on the [CVD] tools. And so, it will take time for that to basically get more adjusted, from a demand perspective. So, we do not, I would say, foresee [a fit] for this current quarter -- a significant, I would say, bump in the LED space.

Thank you very much.

Our next question is coming from the line of David Wu with [Invala] Global Research. Please state your question.

Yes, good morning. I'm sorry, I got on late. I was wondering two questions. At this point, while your lead time is normal, what kind of visibility are your customers giving you, beyond the immediate quarter? And I also wondered whether the -- you've seen more competitive action out of ASE -- I mean, I'm sorry, specific products on the copper side. I think they were late in getting involved in copper; and at this point, I don't know where they are relative to you.

Okay. So, let me answer your first question, which was -- I'm sorry, can you repeat again the first part?

Yes, the first part is, while your lead time's only 12 weeks, what kind of visibility are your customers giving you, since all of them are in the process of converting to copper ASAP?

Yes, I mean, the visibility has not changed. In other words -- which is why we are focusing on providing guidance for the current quarter and the current quarter only. So, as a reminder, orders are -- all our orders, all our backlog is (inaudible). So, we feel pretty good about this quarter, which is reflected in our guidance. But we won't give any prediction beyond the current quarter. So, as you know, this is an industry where things can change very rapidly. So, right now everything feels all right, but we never know. And so, we've been through ups and downs in the past, and we'll go through ups and downs in the future. And I think we have built a model within the Company, so that we can adapt fairly quickly as the market (inaudible) changes.

Now, for -- as far as the competition from other vendors, as I said, we believe that we have a superior technology solution compared to the other vendors. Okay? So, we are not -- it's not (inaudible), but we believe that in terms of performance, cost of ownership, we are -- whether, it's -- and when I say copper solution, it means that not only our dedicated pro copper bonder, but also a traditional gold bonder with a copper [key]. We believe that we have the best solution on the market, which is why we are in a position of -- the position we are in today, which is we are pretty much dominating the market. And we spend a lot of money on R&D to make sure that we keep the lead and stay ahead of the competition.

So, that's really the comment I want to give you. I mean, keep investing. I think maybe one of the differentiator is we work very closely with our customers. We understand all the process issues and all the materials, challenges, that are basically ours to overcome when you go from gold to copper. And we do really think that we have an edge, so -- which is basically reflected in our results.

Okay. One quick one. I assume there's no (inaudible) meaningful impact from the Japan quake on the supply chain.

As I've mentioned in the prepared remarks, we only do about 5%, less than 5% of our business in Japan. We do have a few suppliers in Japan, and we have also, by the way, sales and service team in Japan who are fortunately all safe and back to work. And no, we have not experienced any disruption in supply chain because of the events that happened in Japan.

Thank you.

Our next question is coming from the line of Andy Schopick, a private investor. Please state your question.

Jonathan, I'd like to ask you if you could comment at all about what the Company's plans in general are for the anticipated cash flows that you are likely to achieve this year. They're quite strong. The results speak for themselves. And wonder if you can touch upon, generally, what you would like to do in terms of investing that cash flow.

Yes, Andy. Okay. Basically, I think we're in a great financial situation. I think one of the things that we didn't mention is the fact that we're in a positive return category, actually first time since 2002.

I noticed.

And what we are doing in terms of this fiscal year -- obviously, it's all planning in terms of how we can actually grow the business, make sure that the -- make sure that our model itself can be -- can change and be scalable. So, I think what we will -- having cash is actually very good. The question is, what we are going to do in the future. We certainly will do a lot of basically planning, strategic planning, in terms of what we can do with it, in terms of looking at our core [space]. So, I think, given the fact that the head quarter just moved, and Bruno, myself, as well as the rest of the team, complies with new (inaudible) of people actually coming from different backgrounds. I think we will actually have a robust capital redeployment program in the future to grow the Company.

I'm just wondering whether you could be a little more specific, whether there is any plans for debt reduction, acquisitions, an acquisition strategy, to further broaden and expand your market reach. I'm really trying to get a sense of where you would like to go.

Well, I think right now, we certainly have the cash reserved for the debt at the -- the convertible note that's maturing in June of 2012. However, we do actually maintain the flexibility in terms of what to do with that cash. We have to look at what is the best way to use that cash, to -- whether or not to delever or actually redeploy the cash for potential acquisition, if there's a suitable target. So, once again, it's really -- well, it comes from the discipline that we all have here is, that we will like to have a robust planning process, so that we know what to do with the business, as well as the resources that are available for us.

Sure. Go ahead.

Andy, it's Bruno. If I may add, you know, I've said in -- again, in the prepared remarks that we are constantly looking at ways -- we understand that we're in a cyclical business, and the best way to mitigate a cyclical business is to try to, if you want, expand the breadth of your offering in different markets, different geographies, different customers. And there is no doubt that this is something we are looking at very -- and assessing very seriously. Now, we're not going to do an acquisition for the sake of doing an acquisition.

So, we are constantly assessing opportunities. And it's, I would say, one of our strategic priorities, which is one of the reasons, for instance, we entered the [die touch] market, to expand -- and that's one of the reasons we acquired, we made the wedge bonding acquisition, is to try to expand the breadth of offering of our products, so that overall, we can better mitigate the cyclicality of our business. And so, as we keep building on cash, and hopefully as our -- as the Company becomes better valued from a multiple perspective, that give us more opportunities and more currency to look at a strategic non-organic opportunities.

Well, Bruno, you touched upon an important point. As the stock becomes better valued, I think the frustration among many of us that have followed the Company for years is that we have not really yet seen a better valuation, if you will, put on the Company. I'd certainly be in the camp that the shares are undervalued; and certainly, a share buyback also would be one other possible use of the cash flow that you are enjoying now.

And I just don't know what else to say, but this has, I think, been frustrating for many of us looking at the Company's performance and the strategic move that it's made over the past few years. And the wedge bonder acquisition clearly was a very good one, that it really hasn't yet been reflected in the overall valuation of the Company and your stock.

And I think we are in agreement, which is why we will be very cautious at looking any strategic move that we may or may not make. And as for your comments on share buyback, again, from -- not really previous experience, but more what I've seen from other companies, I mean, it usually give a short little blip of -- in the valuation of the Company, but it has really -- unless you make -- you have billions of dollars to do it, has rarely a long-lasting impact on the valuation of the Company. So, I think that before -- I'm not saying we would never do a share buyback. We will look at all our options, which is why we want to keep the (inaudible) cash on the balance sheet. But I think there are probably better avenues than a share buyback to raise the valuation of the Company overall.

Thank you.

You're welcome.

(Operator Instructions) Our next question is coming from David Duley with Steelhead. Please state your question.

Just a quick follow-up from me. Could you talk about the tax rate? I think you mentioned that it was going to go down next year. What are the key reasons behind that, and could you give us an estimate of what you think the cash flow would be in the June quarter? Thank you.

Okay. David, let me just explain the tax. I won't comment on the cash flow for next quarter, unfortunately. This quarter, the effective tax rate is actually 11.2%, and we look at the last quarter's 25.1%. And the reason what's driving the reduction of this tax rate is the fact that we did actually get the written letter from Singapore EDB, which basically provide us the single tax rate, which many of the regional headquarter types of companies will have here. And when that letter actually was issued, it actually -- it goes -- it's retroactive to last year, last February.

So, there's a bit of catch-up. You look at the actual tax expense versus the revenue, it's going to be in the low single digits. But the effective tax rate itself is actually 11.2%. The cash rate is even lower, in terms of this quarter -- it's 8.3%, just for your information. So, going forward, we'd still expect this rate to reduce, and there will be a convergence of the effective tax rate and the cash rate to 5% to 10% going past this fiscal year.

And that's the number we should use, basically, going forward?

That's correct.

Okay. And on the cash flow, I guess you don't want to predict what that's going to be. Is there going to be any unusual contribution or non-contribution from the balance sheet this quarter, or can we just kind of take the net income and add the depreciation and start with that number?

Yes, I think that's a good approach. I think we don't like surprises, and we're just basically managing the way the business is actually coming in.

Thank you.

Thank you.

Gentlemen, it appears we have no further questions. I'll now turn the floor back over to Management for closing comments.

Thank you for joining us today. And if there are no further questions, this concludes our call. And we look forward to talking to all of you next quarter. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.