Photronics Inc (PLAB) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Photronics Q2 FY11 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to your host, Mr. [Pete Broadbent], Investor Relations. Please go ahead.

Thank you. Good morning, everyone. My name is Pete Broadbent, Investor Relations of Photronics. We would like to thank you for joining our second-quarter 2011 conference call.

Before we begin I would like to remind all participants about the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995, and (inaudible) the statements we make during this call except for historical events may be considered forward-looking and may be subject to certain risks and uncertainties that could cause actual events to differ materially from those projected, including uncertainties that may affect the Company's operations, market, pricing, competition, procurement manufacturing efficiencies, and other risks detailed from time to time in the Company's SEC reports. These statements will contain words such as believe, anticipate, expect, or similar expressions. This call will be archived on our website until we report our third-quarter 2011 results.

Joining us on the call today are Constantine Deno Macricostas, Chairman and Chief Executive Officer; Sean T. Smith, Senior Vice President and Chief Financial Officer; Dr. Christopher Progler, Vice President, Chief Technology Officer and Strategic Planning; and Dr. Peter Kirlin, Senior Vice President, US and Europe.

Deno will first provide a brief review of market conditions and our strategic direction. Sean will then provide a comprehensive review of Photronics second-quarter performance. During Deno's and Sean's remarks they will be referring to slides posted on our website under the Investor Relations link. Deno?

Thank you, Pete, and good morning, everyone. We have outstanding news to share with you once again. We exceeded our top- and bottom-line guidance, both by (inaudible) margins, and we believe we are on track to provide excellent results for the full year.

Please turn to slide 3 of our slide presentation. For Q2 we grew revenues sequentially 10% to $133.1 million, a new all-time record for the quarter. Guidance was between $117 million to $121 million.

IC sales achieved a new quarterly high of $101 million, up 14% over our strong first quarter. High-end sales grew 50% sequentially to $28.3 million. These results demonstrate the success of our investments at the high-end. As Sean will share with you, we believe our growth rate is outpacing the competition and we are gaining market share.

FPD photomask sales were $32.1 million, our second consecutive quarterly record. (inaudible) were essentially flat sequentially, we had approximately a $5 million pull-in benefit in Q1 as a result of the Lunar New Year. So these results are excellent.

Looking geographically, revenues were up significantly in the US and Europe. And the US was at the highest level for sales since Q3 2002. The US was up 29% sequentially and Europe grew 21%.

Please turn to slide 4. We also performed exceptionally well on the bottom line. As I mentioned, we exceeded our guidance range of $0.15 to $0.18, and reported $0.24 non-GAAP diluted EPS. This is up from $0.20 per share sequentially.

Non-GAAP net income of $14.8 million is also a new record for us. We achieved our goal of at least 15% operating margin, reporting 15.9%, 260 basis points sequential increase.

EBITDA of $44.6 million for the quarter was also a record for us. It is the sixth consecutive quarter of improved normalized profits. This bottom-line performance again demonstrates our ability to contain costs while focusing on long-term growth.

Also, during the quarter we completed an offering of new convertible notes and amended our credit facility. This now gives a greater financial flexibility going forward to execute our growth strategy.

Please turn to slide 5. As we have said over the past year, 90% of our capital spend has been dedicated to high-end customers. We continue to see the value of those investments.

Our 65-nanometer and below business grew 50% sequentially, and our 45-nanometer and below business grew 74% sequentially. I am excited about our leading-edge capability.

We are now shipping (inaudible) nanometer node and actively qualified on 22-nanometer in both memory and logic. We are gaining traction at the most advanced technology levels and see momentum on the leading edge going forward.

Please turn to slide 6. Our partnership with Micron, an investment in nanoFab [in voice] has provided an excellent foundation for significant growth at the high-end in memory and logic applications. The total mix of nanoFab in general terms is broad-based. About half of the mix is memory and the other half is a mix of logic and other special applications, including image sensors, OEM, and specialty products.

Please turn to slide 7. Our strategy to capitalize on increasing demand for high-end IC and FPD photomasks is certainly paying off. The success of this strategy is the result of our focused investment in high-end capabilities during the past few years.

For 2011, (inaudible) for CapEx in the range of $75 million to $90 million. Q2 annualized EBITDA of about $178 million exceeds our projected $150 million for fiscal year 2011. So our cash flow is nearly double our CapEx plan for the year.

We are capitalizing on our high-end investment and we are planning to deploy additional high-end capacity to ensure that we maintain our momentum at and below 45 nanometers. As I said before, these investments at the high-end gain us market share and protect us against downside risk.

(inaudible) experience any softness in the market, the equipment we are purchasing will be (inaudible). The current trends in device innovation are in our favor for sub-45-nanometer demand.

Let me close with two points. First, our high-end strategy with our global mix and mask production is delivering record top-line and market share growth.

Second, we have strengthened our balance sheet and now have the flexibility to take advantage of the opportunities to grow our position in the market. We expect the trend to continue into 2011 with top- and bottom-line growth and strong free cash flow.

Before I turn the call over to Sean, I would like to thank the entire Photronics global organization for their hard work, vision, and commitment. Our team delivered record results this quarter and anticipate capturing significant market share this year and beyond. Sean?

Thanks, Deno, and good morning, everyone. I'll provide a brief analysis of our financial results for the second-quarter fiscal year 2011. I will also review our balance sheet and cash flows during the period and discuss our outlook going forward.

Please turn to slide 8. During the quarter, we issued $115 million 3.25% convertible senior notes which mature in 2016. In connection with the issuance of the senior notes we additionally acquired $30.4 million of our outstanding 5.5% convertible notes by delivering $19.7 million in cash and approximately 4.5 million shares of our common stock with an approximate value of $39.2 million. We also retired other certain debt during the quarter.

The net impact of these transactions was a one-time (technical difficulty) of approximately $30.5 million, the majority of which was non-cash.

For purposes of our discussions on operations during the second quarter, I will primarily be referring to our operating results excluding the net impact of these items and comparing our non-GAAP results to the second-quarter guidance we published during the Q1 2011 conference call.

Please turn to slide number 9. Net sales in the second quarter amounted to a quarterly record of $133.1 million, which was significantly higher than our guidance of $117 million to $121 million, primarily as a result of strong demand especially for high-end IC photomasks.

The quarter was also impacted by approximately $5 million in increased orders, principally mainstream, as a result of the Japan earthquake. Keep in mind when looking at our sequential performance that Q1 did benefit from about a $5 million pull-in of orders as a result of the Lunar New Year. As a percent of total sales for the second quarter, sales were approximately 59% in Asia, 31% in North America, and 10% in Europe.

As Deno mentioned, revenues for IC and FPD photomasks were both quarterly records of $101 million and $32.1 million, respectively. Sequentially, total sales increased by 10%.

Please turn to slide number 10. Advanced IC sales were $28.3 million for the quarter, a sequential increase of $9.4 million or 50%, and were up 85% from the second quarter of a year ago. We would like to note that the overwhelming majority of the increase in high-end IC photomasks was unrelated to the earthquake.

In addition to the increased high-end demand for IC photomasks, we experienced an increase in mainstream IC sales of 4% sequentially and 6% year-over-year.

Please turn to slide number 11. Advanced FPD sales were $15.2 million or 47% of total FPD sales. As we discussed earlier and on our first-quarter conference call, Q1 2011 received a benefit of approximately $5 million in pull-in orders related to the Lunar New Year. The bulk of the pull-ins related to high-end FPD orders.

Included in high-end IC and FPD mask sets for semiconductor design at and below 55 nanometer and FPD sets used to fabricate flat-panel products using G7 and higher technology.

If you turn to slide number 12, you can see our steady progress in capturing high-end IC sales during the last seven quarters, which now is approximately 28% of total IC sales.

Flipping to slide number 13, we provide you with an overview of our overall market share growth in the IC photomask market, which we believe has grown significantly over the last year -- as Deno mentioned, outpacing the market.

Now let's continue through the income statement. Gross margin for the second quarter was 27.4%. Sequentially, gross profit increased by $5.9 million which amounts to a 48% drop-through on incremental sales. Overall, gross margin improved by 210 basis points as a result of the increased sales volume.

Selling, general, and administrative expenses for the quarter were $11.4 million as compared to $10.7 million in the first quarter. R&D expenses, which consist principally of continued development for our global advanced process technologies, was $3.9 million in the second quarter, up slightly sequentially.

Please turn to slide number 14. On our Q2 2010 conference call, we established two internal goals of generating annualized EBITDA of at least $150 million and operating margins of at least 15%, both of which have now been achieved. As Deno mentioned, during the quarter we generated operating income of $21.1 million, or 15.9% of sales.

EBITDA for the quarter excluding the one-time charges previously mentioned was a record at $44.6 million, which equates to $178 million on an annualized basis. As you can see on the chart on the right, trailing 12-month EBITDA is now over $150 million at $155 million.

Our next goal is to generate operating income of at least 17.5%, which would return us to peak levels. In the past we [needed to] discuss the leverage on our operating model has on increased revenue. In comparing Q2 2011 to Q1 2011, the incremental operating margin was approximately 41% for the second quarter on increased revenues of $12.3 million.

The 41% incremental margin is slightly lower than our targeted range, primarily due to increased billing expenses incurred to capitalize on the higher demand.

Other income and expense net of the $30.5 million charge previously discussed for the second quarter was expense of $2.4 million and includes unfavorable foreign exchange losses during the quarter, $745,000 of non-cash loss on warrants and net interest expense.

During the second quarter we recorded a tax provision of $3.3 million which was within our guided range of $2.5 million to $3.5 million. Minority interest expense was $1.4 million during the quarter. Excluding the one-time charge and impact of the warrants, non-GAAP net income, as Deno mentioned, was a record $14.8 million or $0.24 per diluted share. GAAP net loss including the one-time charge and non-cash charges was $16.4 million with a loss per share at $0.30.

At the end of the second quarter we had approximately 1,310 full-time employees, which equates to a record revenue per employee of $406,000 on an annualized basis.

Now turning to the balance sheet. Cash and cash equivalents at May 1, 2011, amounted to $186 million with working capital of $179 million. At May 1, 2011, accounts receivable increased sequentially by $17.8 million as a result of the increased revenue during the quarter.

Our quarter-end inventories increased by $6.8 million sequentially to $27.9 million as a result of securing additional inventory to avoid any potential shortages related to supply in Japan. At this point in time, we do not expect any supply shortages related to the earthquake.

Accounts payable and accrued liabilities at May 1, 2011, amounted to $135 million as compared to $129 million at the end of the first quarter. At May 1, 2011, $44 million of CapEx was accrued for, which is down $9 million from the first quarter.

Please turn to slide number 15 as we review our capitalization. Total debt at May 1, 2011, was $165 million. The principal components of outstanding debt include $27.1 million of 5.5% senior unsecured notes due in October 2014; the recently issued $115 million 3.25% senior unsecured notes due in April 2016; and approximately $20.9 million for a capital lease obligation for a tool installed in the nanoFab; and approximately $2.5 million related to an obligation with a customer who cofunded a tool purchase.

As I mentioned earlier, in addition to the issuance of the convertible notes during the quarter we amended our revolving credit agreement, relaxing various covenants, and we repaid $23 million of our higher interest-bearing debt including a capital lease on the nanoFab building. At May 1, 2011, we did not have any borrowings outstanding on our $30 million revolving credit line, which now matures in April of 2015.

At the end of the quarter our net cash was $21 million. Taking a look at our cash flows, cash provided by operations for the second quarter of 2011 was approximately $22 million, and $64 million year to date. Depreciation and amortization for the quarter amounted to $23.3 million.

Cash flow used in investing activities during Q2 amounted to $25 million, and $48 million year-to-date, and includes approximately $39 million for cash payments for capital expenditures. Net cash provided by financing activities amounted to $72 million, and $65 million year-to-date, which includes the net increase in debt during the quarter.

Our CapEx needs on a cash basis for fiscal 2011, as Deno mentioned, is in the range of $75 million to $90 million as we are presently evaluating the addition of high-end capacity for our leading-edge IC network. As Deno mentioned, the significant high-end market share gains that have driven our increased revenue during the first half of '11 validates our high-end investment strategy. During 2011 we plan to principally invest in high-end capacity in Boise, Korea, and Taiwan.

As we look forward, the management team is evaluating opportunities for additional growth, continued share gains, and potential strategic initiatives which improve our growth prospects. We're also looking to continue to improve our balance sheet, reduce our cost of capital, and maintain our financial flexibility.

Please turn to slide number 16 as we take a look ahead. Our visibility as always continues to be limited, as our backlog is typically one to two weeks. As we discussed, we did receive some additional orders from the Japan earthquake in the second quarter. At this point in time we do not expect a similar trend to continue.

So taking this all into consideration, we are projecting revenue for the third quarter of 2011 to be in the range of $128 million to $133 million. During 2011 our tax rate will be impacted by the flow of income from jurisdictions for which we may have credits and upon our limited ability to recognize tax benefits in areas in which we are taxable. Accordingly, we are estimating income taxes for 2011 to be in the range of $12 million to $15 million. And for the third quarter, this will equate to a range of income tax expense from $3 million to $4 million.

As a result, based upon our current operating model, we are estimating earnings per share for the third quarter of 2011, exclusive of the impact of the non-cash warrants, to be in the range of $0.17 to $0.21 per diluted share.

As we progress in fiscal 2011 our financial priorities remain the same. Please turn to slide number 17.

Because of the opportunities we see before us, coupled with the strong leverage in our business model, we are well positioned to maximize our free cash flow. We also plan to continue to reduce the cost of capital and debt as we invest prudently and maintain financial flexibility, as well as achieve our financial goals.

Please turn to our summary slide, number 18. For the first half of 2011 we have turned in excellent performance, both from a sales perspective as well as on the bottom line as we capitalized on strong operating leverage. The investments we have made during the past few years on high-end IC and FPD photomask capabilities are really paying off.

Our growth at the high-end in IC in Q2 is both a testament to the success of the strategy as well as a sign of future success. We remain confident that we will continue to take share at the high-end and capitalize on many exciting opportunities.

2011 promises to be an exciting year of operational achievement and a robust top- and bottom-line growth for Photronics. We look forward to building on our momentum in the quarters to come.

With that, I will turn the call over to the operator for questions and answers.

(Operator Instructions) Patrick Ho, Stifel Nicolaus.

Thank you. Congratulations, guys, on a really nice quarter. I know the mask industry is a lot different from the overall equipment space; but from your perspective, what is your current take of the current industry environment as it relates to what you are seeing from the chip makers, particularly given the noise that is out there right now?

Chris, do you want to handle that?

Sure. I can talk a little bit about some of the high-end activity. From our view, we still see very, very strong high-end interest. To go through segments in the foundries, 28-nanometer really seems to be picking up; a lot of interest and activity there. The yields are good and there is a good price crossover point now.

For NAND, Flash, the 20-nanometer class NAND is expanding we think in 2011, a lot of activity. And also should see the first high-volume microprocessors in 22-nanometer, so that is also a positive high-end sign.

Then on DRAM, a lot of attention on 30-, 40-nanometer class DRAM. So across-the-board we still see a lot of strong activity, both R&D and production needs for these higher-end nodes.

Great. Maybe a question for you, Sean. With the strength in the high-end IC business and with your maintaining your current CapEx plan, you did give a breakdown of where these dollars are going to be focused right now.

Given obviously that the demand trends can change at any point, can you allocate the content of dollars pretty quickly to whatever region may be accelerating versus others? Or are your plans pretty much set for the rest of the year?

Patrick, that is a good question. We are currently evaluating our options as we look into 2012. We do maintain our flexibility, and the management team continues to evaluate the footprint. So where we see demand increasing, as we did in the nanoFab earlier in the year, we made some plans to redirect dollars to increase the capacity.

I will turn it over to Peter in a second and he can fill you in more on that. But what we plan to do over the next two months is evaluate, continue to evaluate the business, take a look at the first half of 2012. And when we close Q3 we will probably be in a position to give the Street a longer-term view on our capital -- our CapEx plans as we get into 2012 and the first half of 2013. Peter, do you want to add?

Yes, I think the other avenue that we have to maximize our capital productivity is our mix-and-match manufacturing model. As our high-end footprint expands we are really building the business in all three factories. So even if one factory is full, we have the ability to shift work around the manufacturing network so that we maximize our overall capital productivity.

So in conjunction with redirecting where we make investments, real time we redirect work to maximize our delivery performance. So we have a -- we are global factored, and every day, as every day goes by, that statement is more and more true, not just in the mainstream segment but also at the high-end.

Great. Final question from me. In terms of your current capacity and the [addition] that is still forthcoming, where do you think you are in terms of utilization rate percentages? Do you feel that you can maintain these high levels even as you add on new capacity?

At this point in time, Patrick, we believe we can. We estimate during the -- we did $133 million; and depending upon the mix we certainly had the ability -- and this is across the board with the FPD and IC segment -- to certainly do north of that during the quarter.

But as you correctly put, as we are exiting the quarter we will continue to put capital in and qualifying tools, so that our overall capacity builds up.

Great. Thanks a lot, guys.

Krish Sankar, Bank of America Merrill Lynch.

Yes, hi. Thanks, a couple of questions. Sean, when you look into your July quarter, can you tell us a little bit about the mix of business between IC, FPD, and then high-end IC, high-end FPD?

Well, Krish, we typically -- plus or minus on a quarterly basis, FPD is about 25%. We did have a very strong IC quarter.

Our goal would be to continue to improve our high-end IC. How much that goes up and to the extent it goes up, it's in our guidance. But our goal is to continue to see growth at the high-end both for FPD and IC.

Got it. You guys have done a pretty good job in gaining share over the last year or so. Can you tell us the incremental share? Has it been in any one specific segment like NAND or DRAM, or has it been more broad-based? And where did you see the biggest share gain?

Yes, really the house that Deno built is -- our brand represents customer service. What we have done with our share gain is leverage the Micron relationship on one hand and leverage the brand recognition the Company has on the other.

If you look at our mix of business at the high-end, you see it is well balanced. So the share gains right now are coming both in memory as well as logic, leveraging our strong technology into the Micron and affiliates and the brand recognition, and therefore customer relationships we have in the logic segment of the business. So it is really broad-based.

All right. I also noticed your new entries ticked up quite a bit. Can you just tell us what was (inaudible) your [roughly] $28 million in new entry for blanks and flat-panel substrates?

Krish, I'm sorry, I could not make out that question.

What percentage of your inventory is for blanks and flat-panel substrates?

The inventory build is for both IC and FPD substrates.

So out of the $28 million, is 90-plus percentage for blanks and FPD substrate; is that fair (inaudible)?

The bulk of that inventory is for blank substrates.

Got you, all right. Final question, can you give us an update on what you guys are doing on your photomasks or EUV applications, and where you are in that cycle? Thank you.

Sure, Chris, you want to answer that for Krish?

Sure, sure. We are -- so you are aware if you follow ASML they announced I think 10 scanners, 3300, sold to the industry, which will start shipping next year or two. And there is a handful of 3100 scanners.

Today, we are selling EUV masks into that market to support those scanners. We have a partnered production model. We are participating. We have a very leading-edge product there, so we are participating today.

In terms of our long-term strategy for EUV we are right now evaluating a series of partnered or independent models to look at how we approach that manufacturing. We believe we have a little bit of time.

Initially, most of the masks will come from captives and joint ventures. But we are participating today, looking at our own production model to support that industry. So we like our positioning and think we are in tune with what is going on there.

Thank you.

Stephen Chin, UBS.

Yes, thanks. Hi, guys, this is [Marvis Sangry] for Stephen Chin. Congrats on great results, and just two quick questions. Sean, can you quantify your additional orders from Japan for the quarter?

Sure. We believe we had about a $5 million increase related to that. The bulk of it was mainstream product, and if you look between IC and FPD it would probably be 80/20.

That's helpful. So, I just want to think about it from your Q3 guidance perspective. So if I take that $5 million out of your Q2, that gives me about $128 million; and Q3 is your strongest quarter for the year for past two years.

So, your guidance for Q3 assumes a more conservative estimate of the orders because you expect FPD to come back in the Q3 as well?

I think the way you're looking at is correct with respect to the, say, $128 million as a baseline if you take out that incremental Japanese order -- orders. We do expect revenue to grow. At the high-end it will be $5 million at $133 million or so.

To the extent we can achieve more than that, it remains to be seen. But we are certainly going to try to achieve the range that we guided to and do expect it to be a growth quarter, quarter-over-quarter, exclusive of the impact of the additional orders from Japan.

All right, thanks. Did you have any 10% or greater customers for the quarter?

We only publish 10% customers on an annual basis. But what we have said is last year we had Samsung; and certainly the Micron and [Instilius] would classify themselves in the aggregate as a 10% customer.

Great, then my last question. Can you guys share any color on your expectations for TAM growth for 2012, given higher CapEx in 2011 and new designs for smartphones and tablets? Thank you.

Chris, do you want to answer that?

For the market size growth on display in particular?

For both if you can.

Well, I guess what I can comment on, on the display side, we do see increasing activity on the mobile handset business particularly for displays. This is an emerging area for us on the photomask side.

Primarily it is driven by the AMOLED technology that some of our customers are attempting to put into mass production for mobile display. So this type of technology should drive greater mask units and more complex masks, and that should lead into revenue generation for that technology.

As far as the specifics of how much and when, at least I am not able to comment on that right now.

On the IC side, primarily NAND Flash is the largest growth area we see. You may have read some of the reports -- 3, 4X increases in required NAND to support the mobile devices. And we're very well positioned there.

The customers we sell NAND to now are gaining market share and getting designed into a variety of mobile devices. So we are also optimistic that will generate new revenue opportunities.

Great, thank you.

Edwin Mok, Needham & Company.

Hi, guys, thanks for taking my question and congrats on a great quarter. First, Sean, I just want to clarify on your comment there on the $5 million of incremental revenue related to Japan earthquake. Is it 80% FPD or is it 80% IC?

80% IC, primarily mainstream; and 20% FPD.

Okay, great. Thanks for clarifying that. If I back out that number, the FPD revenue still grew quite substantial, or your mainstream FPD revenues grew quite substantially sequentially from the January to the April quarter. I was wondering why. What happened there?

I think as Chris alluded to -- and we will provide additional color as we get into Q3, announce Q3 -- there's other specific applications that are coming into the market. The mobile devices that we are picking up some -- we are seeing some business from.

Great, so the OLED is [driving]. Thanks for clarifying that.

Then a longer-term question. You guys highlighted new operating margin target of 17% or 17.5%. I was wondering what revenue level are you thinking -- you think you can reach this operating margin target? And then does that preclude a [certain] mix of business [relating to] IC versus FPD?

Sure, Edwin. The mix, this would be -- it is not mix related; it is just additional revenue flowing in and the leverage within the model. But if you look at where we were, say, for our operating expenses as we exited Q2, we did $133 million. If we had another $8 million to $9 million in revenue, we probably would have been over the 17.5%.

So that is our next near-term target. As we said even last May, as we continue to achieve these targets we are going to continue to take the next step up.

Wow. So okay, great. That's very helpful. So a lot of (inaudible) in the model.

Let me see; one last question I have. I think on Deno's prepared remarks, you guys talk about the 45-nanometer business growing like 74% sequentially. Very strong numbers there.

I was wondering, can you clarify for us on the high-end side how much of that is 65 versus 45? And as you look out for, let's say, not this quarter but for next few quarters, do you expect that to flip over and see 45 becomes as big as 65 or bigger?

The strongest growth driver on the high-end was and is already -- was and is already 45 nanometers and below. If you look incrementally, 45 nanometer and below grew 75% quarter-over-quarter. So we have already made the transition as a Company at the high-end to having 45-nanometer and below technology be the growth driver of our high-end business.

Maybe a different way to ask is, of the [tween] and also high-end IC revenue, how much of that was 65 or above, and how much of that was 45 and below?

Of the $28.3 million, that was all 65 and below. What Peter just said, the vast -- the highest growth portion of that is 45 and below and the focus of the growth.

As we sit here today for competitive reasons we're not breaking out 45 and below because our competitors do not do so. But the key growth driver as Peter stated is 45 and below, so we made that transition.

I see, great. That's all I have. Thanks for clarifying that.

(Operator Instructions) Tom Diffely, D.A. Davidson.

Yes, good morning. Sean, when you look at the leverage in the model, the 45% incremental gross margins in the quarter -- is that something that you think is fairly representative of how the model works? Or was it slightly higher or lower because of special factors in the quarter?

The gross margin leverage I believe, Tom, was 48%; and we will probably target anywhere from 45% to 50% as we move forward. We think that is sustainable. It could be somewhat impacted by mix, but we believe that that is sustainable.

Our operating expenses should be relatively stable moving forward. So our goal would be to achieve all-in operating margin leverage of about 45%. Some quarters we may be higher, a little bit higher, and some quarters we may be a little bit lower.

Okay, great. Then when we look out, what share count are you using for the next quarter, for the current quarter?

The share count for a fully diluted share count is approximately 77 million shares, 76.8 million. Those shares -- the fully diluted share count was based upon a minimum net income per quarter of approximately $6.2 million to $6.3 million on a diluted basis.

Okay, all right. Then is there some way to gauge what the minority component is going to be going forward?

I'm sorry. Can you repeat that?

Yes, trying to figure out how to forecast the minority expense or the minority controlling -- non-controlling interest.

I believe that was $1.4 million for the quarter, down from $1.3 million, $0.5 million Q1. I think it should be -- to the extent we're achieving our top line, it should be about the same moving forward.

Okay, all right. When you look at supply chain issues, it sounds like you have built some inventories; you are good for a while. But what components are the toughest do you think to get right now? What are the ones that you worry about the most?

I think initially we were worried about the upstreams, but I think our procurement team effectively handled that potential issue. I don't believe, Peter, we have any concerns as we look out into the horizon.

No, I would only just expand Sean's statement a bit. Our inventory has grown both in this book in substrate as well as pellicles. If we had any concerns about any chemicals, I didn't want to be sitting explaining why we missed an opportunity because we didn't have what we needed to build the product. So our supply-chain organization responded quite strongly, and we made absolutely certain that we would not be sitting without materials to build products.

I think also, our concern about the situation is diminishing. So over time now we will manage the situation gradually, get back to historical levels. But we will not in any way jeopardize our ability to capitalize on market opportunities that we see based on lacking any consumable.

Okay, great. Then when you look at the growth you've had at the high-end especially on the IC side, is most of that growth coming in from a couple key customers? Are you seeing a nice expansion of the customer base itself?

It is coming from both. It is coming from repeat customers as well as expansion in the customer base.

When we look at our high-end business, it is two dozen or more companies now. Some big, some small. So yes, it is a lot of fun managing the high-end business right now, because there seems to be no limit to our opportunity space at the present time.

Okay. Finally, when you look at the toolset that you need to do 45 nanometers versus 32 nanometers, is it the same toolset, or there are significant tool additions you need to have?

As we said earlier, we have a significant amount of sub-45-nanometer business, and really 45- and the 32-nanometer node I feel -- we're feeling pretty good about the process capability with the toolset that we have.

We're adding incremental capacity, and it is really targeted at the 22-nanometer node. That is where our current toolset runs out of capability; and that is where (technical difficulty) are, at least in the nanoFab anyway, focused at the present time. So we are expanding our footprint at the bleeding-edge.

Okay. Sean, one more question for you. On the tax side, the $12 million to $15 million tax number you gave us for this year, is that representative of the next long-term rate, or there are special one-timers in there?

To the extent we have this type of revenue stream and/or growth it may tick up a little bit. Most -- we are not taxpayers in the US; we are taxpayers in certain other locations, principally Taiwan, Korea, and in Europe. To the extent we continue to improve the US book of business where we have NOLs, our effective tax rate will come down; but the absolute dollars should be about the same and/or may tick up slightly.

Okay, all right. Thank you.

I am showing no further questions at this time and would like to turn the call back over to management for any closing remarks.

I would like to thank you, all the participants, and thank you for your support. Have a good day. Thank you.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.