Park Aerospace Corp. (PKE) Q2 2013 Earnings Report, Transcript and Summary

Good morning. My name is Ann, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Park Electrochemical Corporation Second Quarter Fiscal Year 2013 Earnings Release Conference Call. [Operator Instructions] At this time, I will turn today’s call over to Mr. Brian Shore, President and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, operator. This is Brian Shore. I have with me as usual Matt Farabaugh, our VP and CFO. And I will begin with some introductory remarks, then we’ll go on to Q&A. Matt will start with financial commentary, I’ll add a few comments of my own. I just want to mention a couple of things. So first of all, Matt will be giving some comparisons to the prior quarter rather than just last year’s comparable quarter -- or I should say in addition to the last year’s comparable quarter is because sometimes the prior quarter comparisons are more relevant. And other thing is, I want to remind you that a transcript of Matt’s comments already posted on our website, there’s a lot of numbers and detailed information in Matt’s comments. So you may want to also refer to the transcript of his comments on the website. Go ahead, Matt.

Thank you, Brian. Certain statements we may make during the course of this discussion, which do not relate to historical financial information may be deemed to constitute forward-looking statements. Any forward-looking statements are subject to various factors that could cause actual results to differ materially from our expectations. We have set forth in our most recent Annual Report on Form 10-K for the fiscal year ended February 26, 2012 various factors that could affect future results. Those factors are found in Item 1A and after Item 7 of that Form 10-K. Any forward-looking statements we may make are subject to those factors. I would first like to summarize the financial information included in the news release for the second quarter ended August 26, 2012, and in some cases, add a comparison to the first quarter of the 2013 fiscal year. Net sales for the 2013 fiscal year second quarter ended August 26, 2012 were $46.4 million compared to net sales of $50.4 million for the prior fiscal year’s second quarter, and compared to net sales of $46.0 million for the first quarter of 2013 fiscal year. Park’s sales for the first 6 months were $92.5 million compared to sales of $102.3 million for the prior fiscal year’s first 6 months. Net earnings before special items for the 2013 fiscal year second quarter were $5.8 million compared to net earnings before special items of $6.6 million for the prior fiscal year second quarter and compared to net earnings before special items of $4.9 million in the first quarter of the 2013 fiscal year. During the current year second quarter, the company recorded a pre-tax charge of $2.5 million in connection with the planned closure of the Nelco Technology, Zhuhai facility located in the Free Trade Zone in Zhuhai, China. During the prior year’s second quarter, the company recorded other pre-tax income of $1.6 million related to the settlement of certain lawsuits during the quarter. Accordingly, net earnings were $3.2 million for the second quarter ended August 26, 2012 compared to $7.7 million for the second quarter ended August 28, 2011. Park’s net earnings before special items for the 6 months were $10.7 million compared to earnings of $13.9 million for the prior year’s first 6 months. The current year’s 6-month period included pre-tax charges of $2.5 million primarily related to the facility closure mentioned above. The prior fiscal year 6-month period included the other pre-tax income of $1.6 million related to the settlement of certain lawsuits mentioned above. Accordingly, net earnings were $8.2 million for the 6-month period ended August 26, 2012 compared to $14.9 million for the 6-month period ended August 28, 2011. Park’s diluted earnings per share before special items were $0.28 for the 2013 fiscal year second quarter compared to diluted earnings per share before special items of $0.32 for the prior fiscal year’s second quarter, and diluted earnings per share before special items of $0.24 for the first quarter of the 2013 fiscal year. Diluted earnings per share were $0.16 for the second quarter ended August 26, 2012, compared to $0.37 for the second quarter ended August 28, 2011. Park’s diluted earnings per share before special items were $0.51 for the first 6 months ended August 26, 2012, compared to diluted earnings per share before special items of $0.67 for the prior fiscal year’s 6-month period. Diluted earnings per share were $0.39 for the 6 months ended August 26, 2012 compared to $0.72 for the 6 months ended August 28, 2011. Now I’d like to briefly review some of the other significant items in our second-quarter P&L. During the fiscal year 2013 second quarter, North American sales were 42% of total sales, European sales were 9% of total sales and Asian sales were 49% of total sales, compared to 44%, 13% and 43% respectively through the second quarter of the prior fiscal year and 47%, 11% and 42% respectively for the first quarter of fiscal year 2013. Sales of Park’s high performance non-FR4 printed circuit materials were 82% of total laminate and prepreg material sales in the second quarter of fiscal year 2013, 79% in the second quarter of the prior fiscal year, and 81% in the first quarter of fiscal year 2013. Sales of Park’s aerospace materials and parts were $5.8 million in the second quarter of the 2013 fiscal year, compared to $7.1 million in the second quarter of the prior fiscal year, and compared to $7.6 million in the first quarter of the 2013 fiscal year. Sales of aerospace materials and parts were $13.4 million for the first 6 months of the current fiscal year and compared to $12.8 million for the prior year’s comparable period. The gross profit percentage for the second quarter of fiscal 2013 was 28.4%, compared to 28.8% for the prior fiscal year second quarter and 28.2% in the first quarter of the 2013 fiscal year. Selling, general and administrative expenses were 14.2% of net sales for the 2013 fiscal year second quarter, compared to 13.7% for the prior year second quarter, and 15.3% in the first quarter of the 2013 fiscal year. Selling, general and administrative expenses include net foreign exchange losses of $75,000 in the second quarter of fiscal year 2013, $42,000 in the prior fiscal year second quarter and $219,000 in the first quarter of fiscal year 2013. Investment income for the second quarter was $179,000 compared to $196,000 for the second quarter of fiscal year 2012, and $198,000 in the first quarter of 2013 fiscal year. As a result, pre-tax operating profit before special items was 14.6% of net sales for the 2013 fiscal year second quarter compared to 15.5% for the prior fiscal year second quarter and 13.3% in the first quarter of the 2013 fiscal year. Pre-tax operating profit was 9.2% for the 2013 fiscal year second quarter compared to 18.7% for the 2012 fiscal year second quarter. The effective tax rate before special items was 15.8% for the 2013 fiscal year second quarter compared to an effective tax rate before special items of 15.5% for the prior year second quarter and 19.3% in the first quarter of the 2013 fiscal year. The effective tax rate for the fiscal year 2013 second quarter was 23.8%, compared to 18.6% for the prior year second quarter. Turning to Park’s balance sheet. Cash and marketable securities were $269.6 million at August 26, 2012 compared to $268.8 million at the end of the prior fiscal year. Working capital was $298.3 million at the end of the 2013 fiscal year second quarter compared to $290.1 million at the end of the prior fiscal year. During the current fiscal year’s 6 months, the company had capital expenditures of $600,000 and depreciation expense of $2.2 million compared to capital expenditures of $2.6 million and depreciation expense of $2.9 million for the prior year’s first 6-month period. Stockholders' equity was $346.5 million at August 26, 2012 compared to $343.2 million at the end of the prior fiscal year. Finally stockholders’ equity per share at August 26, 2012 was $16.66 compared to $16.50 per share at the end of the prior fiscal year.

Thank you, Matt. this is Brian again with some additional comments on the quarter. So let’s break it down here, fairly straightforward when you compare it to Q1 especially, top line was essentially flat in Q2 versus Q1 and the bottom line, the gross margin was very similar essentially flat Q2 compared to the Q1. So the difference obviously is in SG&A and in the tax rate, tax provision. So the SG&A was lower in Q2, than in Q1, that relates to both the S line sales as well as the G&A lines. And that’s a reflection of our attempt to keep our operating costs under control and reduce them where possible. So I guess we had some little success in that regard. I did mention in our last quarter that we were unhappy with the legal expenses, and fortunately we are not very successful with bringing those down, of course, that’s in the G&A line, so we are still working on that. But legal expenses are difficult because, of course, when there are major legal matters that we dealt with that drives the expenses up, they spike up, and sometimes those matters are unpredictable. So and our tax rate is lower as Matt noted, in Q2 versus Q1. And that’s really just a function of doing the math based upon the revenue mix, more of the income being overseas than in the U.S. So let’s see, I think Matt already covered this, but in Q2 versus Q1, again revenues were up in Asia, flat in Europe, down in the U.S. and down in the U.S. mostly attributable to aerospace as Matt commented, aerospace is quite a bit down in Q2 compared to Q1. And that also drove the bottom-line quite a bit worse in Q2 versus Q1, by about $700,000. We haven’t given that -- we don’t break it out as a segment, so we don’t give the results for aerospace compared to electronics, but we have given you quarter-to-quarter sequential comparison just to give you a perspective, obviously with the top-line being off by just shy of what is it $2 million, that would affect the bottom-line. Also we had a significant inventory write-off in June, which affected the bottom-line in aerospace. And my comment about that is that, this is not something we are happy about, but not surprising or shocking considering we are really somewhat of a start-up, and we’re going through some of those growing pains that -- every time in my experience when we do something new, we have this growing pains. And we always try to do your best to minimize them, but they do occur. I do believe that the factors let’s say, that led to that adjustment have been well under control and corrected. I think at this point, our management team in Kansas in particular is really coming along, not saying it is perfect, but it’s a lot better than it has been in the past. And that’s been a real effort to build the right kind of management team in Kansas that has not been easy, I can assure you, but I think we have a pretty good team right now. So I would expect those kind of basic operating issues will not reoccur at least not to that degree. So the other item about the top line is our belief, with a bit of hindsight now is that, some of our customers in aerospace were over ordering at the end of Q1, because of the anticipation of a closure of the Connecticut facility. I think that actually happened. So we saw a fall off in Q2, because some of the customers obviously brought some of the orders in in Q1, to get their orders in at the Connecticut facility before it closed. So I'm not sure we're seeing any long-term trend at play there, I think it might be a function of overdoing with our facilities in the U.S. that have impacted the top line, being off for aerospace in Q2 compared to Q1. As Matt noticed, high performance continues to move up, but that’s really not a surprise, I think that’s probably right where we would expect. Our balance sheet, the other item we talked about in our first quarter conference call that we were not happy about in our financial statements was our inventory we thought that was way too high and that has come down quite a bit in Q2 compared to Q1. So we had some degree of success, we’re getting our inventory to the level, where we felt more comfortable. As I said legal fees was the other item we highlighted, we didn’t have so much success of bringing legal fees down, although we did bring SG&A down. The foreign exchange losses, I just want you to note that something Matt is including now in his commentary, something to be aware of, because it does affect our bottom line or SG&A line as well. So I know some of you are always interested in how we're doing in the existing quarter that would be our Q3, we have 3 weeks in our books and our bookings and sales are essentially flat with Q2. So Q2 was really flat with Q1, and the first 3 weeks of Q3 are flat with Q2, nothing significant there. And I know some of you also would ask, what kind of pattern we saw during the second quarter, when you look at the 3 months and it was really flat across the 3 months of June, July and August. Okay, that’s some of the housekeeping stuff. Let’s talk about some of the big opportunities we comment on sometimes I thought we might want to give you a little more perspective on some of the big opportunities we’ve been looking at. There really have been 3 of them; 3 major opportunities. And they are all in the $100 million plus or minus $25 million range in terms of the investment, and that’s an estimate, but that’s our best guess. One was an acquisition, a straight forward acquisition in the aerospace area. And about a month ago we decided to discontinue the discussions regarding that particular acquisition because just -- the numbers weren’t working out for us. There are 2 other major joint ventures that we’re working on in discussions with the 2 aircraft OEMs -- 2 major joint ventures. We won’t comment any further, but they are both in that range of investment of $100 million plus or minus $25 million. So there are significant and if they happen, it will be significant opportunities for Park for a long time for the future; these are late to development of new aircraft. They may or may not happen of course, but we talk about these big opportunities sometimes, so we thought we would give a little more perspective on them. But we also decided that we should initiate more of a formal M&A program, and the reason we felt that is because some of these big opportunities are kind of all or nothing type opportunities. If they happen, that’s good for us, but they may not, and if they don’t, then we’re kind of back to the drawing board. So we initiated about a month ago, a more formalized M&A program at Park. We have a team about 5 people working on that. And we’re just really starting that program, but we’re going to work on that front as well. So let’s see, we covered that. So let’s talk a minute about our plant closures in China. We announced in Q2, we’re closing our plant in China in Zhuhai, China. So let’s discuss that for a minute or 2. Zhuhai was really somewhat of an experiment for Park. We had a small plant that was really just a warehouse kind of operation in Wuxi, China. I guess, I don’t remember the timeframe, but my guess is we started that probably 10 years ago. And then we moved our operations down to Zhuhai and put in more of a manufacturing operation for laminate for high-tech printed circuit materials, but we decided to keep our investment fairly low and on the theory that we want to have a walk-away strategy, which we really didn’t know how it would work. We are concerned about a lot of the mixed signals, there’s a lot of indicators that we should move into China. we should have an operation in China. We were encouraged in some cases with a lot of enthusiasm by the market to set up an operation in China, but we were a little skeptical. So we decided to go in, but not go in with a full-fledged effort -- $40 million, $50 million type plan, which would be kind of more than a walk away situation of course. So we built a $5 million to $7 million plant, I think we started as 5 and we added a couple of -- made a couple of upgrades to maybe a $7 million investment on a theory that it is a lot of money, but if it didn’t work, we could walk away. And we were never confident that we’d be able to remove equipment from China, because there’s not, the China is a very different kind of country to operate in. so we felt that we really had to have a walk away scenario in our mines, it really didn’t work out. But we never got any additional business from being in China, and that was the key for us. we never went to China for low-cost, as a matter-of-fact the irony is it’s higher cost to manufacture in China for us than it is in Singapore, so that was never the objective. The objective was, have a plant in China market to develop new incremental business, that never happened and it never did, and it never had an impact, our build it new business in China was not benefited. China is a very large market for Park and has been for many years, but we service China, and we continue to service China mostly through Singapore. So the decision to close the Chinese plant was really more of a tactical decision because it had no strategic value after all everything was said and done, so we took a write-off. We don't expect to lose any, and I underline any, business as a result of the closure, whatever we’re producing in China, which was really minimal will be produced in Singapore going forward. And it’s the product coming from China, we produced in China was on OEM programs where we were specified in, and I don’t believe we’re going to lose any of that business, I really doubt we would although it was a minimum amount of business. So it ended up being a fairly tactical decision and with a bit of a hindsight, I’m glad we didn’t go in China with the $40 million major investment, I think we would have write it off and of course, just another comment, one of the discussions you end up having very quickly is okay, now you’re in China, so now you should lower your prices. Well, of course that would be suicide for Park because our pricing is global, and we have the same product line whether it’s been produced in North America, Singapore, China. So if we reduced our prices for the product coming from China that would have undermined very badly our pricing in the rest of the world, and that would have been pretty - that would had devastating impact, so that was not going to be the way really our business in China, if we want to do that, we can do that from Singapore. It's not really our business strategy, but if we wanted to get more business by reducing prices, we didn't need to go to China to do that, so that was the irony of it, the Chinese investment. Waterbury, we’ve spoken about this for the last few quarters, I think the last quarter we indicated that the closure was going to be at the end of October. We’re actually little bit of ahead of schedule, and we believe that the manufacturing operations at this point, plan the manufacturing operations at this point will end at the end of this month in September and then the next 2, 3 months, we will be cleaning up the facility and transferring equipment, putting some equipment in storage. So Waterbury is basically closed from an operating perspective, which again was part of our plan. So in case there are questions about our cash, what we do with our cash, we covered the main purpose of our cash, which is to invest in our business and we take that very seriously, and our effort has always been there. We hopefully will deliver some result, which we haven’t delivered, we know last few years in terms of major acquisition to joint venture using a large amount of our cash. As you know a large portion of our cash is overseas, I think we have about $270 million of cash in marketable securities as reported by Matt. And about, I think about only $65 million is in the U.S., so the rest is in Asia. So we’re watching the election pretty carefully, we don’t have any axe ground with the election, but the election has a mild impact in our business and what we can do with it, especially with respect to overseas cash. And that would tie into any repatriation opportunity. And the other thing we’re watching is the election from the perspective of what might happen to the tax rate for dividends and capital gains. So we’re paying attention to that, we are putting contingency plans in place and we are working on -- I should say we are working on contingency plans, based on what happens for the election, so that we can think about any action we might want to take as a result of the election. And take within the timeframe that would be appropriate considering the changes that might take place especially in tax rates. Okay, so those are my introductory comments. Operator, can we go to questions now, please?

[Operator Instructions] And our first question comes from the line of Sean Hannan with Needham & Company.

So Brian and Matt, the decision to close the facility over in China, is it your way perhaps give us a little perspective around, what the drag in terms of the operating profile and the benefits we should expect to see from the closure, I’m not sure if I caught details on that?

Well we think on an annualized basis, it’s fairly a small amount, about $500,000 to $750,000 a year, positive of course, and that would be pre-tax, it’s not a significant amount. And that impact is going -- that will be fully impactive in the third quarter. That’s an annualized amount.

Right, terrific. And then when you look at the results that you had this quarter, was there anything that unique -- aside from some of the cost actions in management that you’ve been taking internally. Was there anything that was unique that may have kept SG&A down, or is this a sustainable level, how do we think about that?

There is nothing unusual about SG&A in this quarter, one thing we didn’t get burdened was those big FX loss that was much less in Q2 than Q1. We really have no control of that, that’s really a function of the Euro. They are intercompany loans to our European operations. And as the Euro bounces up and down, it affects our foreign exchange loss or gain. You know in some cases fairly significant way, so that problem was significantly reduced and that goes right to the SG&A line. In Q2, but there is nothing about the second quarter, which is unusual in terms of SG&A. As I commented we didn’t succeed in bringing our legal cost down and that’s still something we’re working on it.

Okay in the last quarter, I think you would explain that is being kind of $400,000, something like that that was incrementally above the normal spend for some of your legal costs, is that correct, that’s still what we should be thinking about.

In Q2, I think we brought it down by maybe $75,000 from Q1, so we're still in a level that we think is pretty high for a company of our size.

Okay. And then on the advanced composite side, I got a sense coming out of last quarter that you folks felt, fairly optimistic that there could be some material press releases, for that business. Now is that what we should now think about as the opportunities you’re considering that are joint ventures or are there other types of business development activities that are under way that would be in addition to that.

There is one that comes to mind that’s quite significant, it’s not a joint venture, but it just would be a very big program, and that certainly could be the level of an item we would want to announce. It could be significant. We also could require additional investment on Park’s part to service that opportunity if we're successful. Intention was supposed to be made already, but the company involved has had some delays for reasons I will not get into because if I told you, you probably would figure out who the company is, and I don’t want do that, but it’s a major OEM company.

Okay. And are we still, are we hopeful on that, or are we still very optimistic, on that activity around that business.

I think we're hopeful, I don’t believe we received anything -- any negative news, but it’s a bakeoff. So we are not the only one they are looking at, but -- from what we are told we’ve done well in the bakeoff, we put a lot of money into the screening effort it’s called, and we'll see. There is nothing else for us to do. They have all the data, they have all the information, this company just needs to make a decision with what they want to do going forward.

Okay. And then last question, if I can switch over to the electronics side. So you have some new products, which we’ve talked about for a good while and then realizing of course that takes time for there to be this material uptake. What have you continued to see in terms of feedback from potential customers? and then as kind of part B to that, are there any changes within your sales process or has there been any changes within the relationships for your sales management team with them that may impact this uptake?

Well, as far as new products are concerned, I don’t think we have anything really significant or shaping to announce the -20 product line, lots and lots of sampling activity, it seems like there’s high degree of interest in both -20 and -20 SI. So I think the news is good there, with -22 and -22 SI that’s the more esoteric product and I’ve gotten nothing but -- I mean uniformly positive feedback in terms of the testing of the product. I think a question that’s emerging in a little bit in my mind is whether that product is a little ahead of the market though, especially with the -22 SI, whether we need to lead the market catch up with that technology just a little bit, but I can't think of one negative piece of feedback we’ve received on the -20, -22 SI product line. As far as our sales organization, I don’t know what you’re really talking about or referring to, I don’t understand that question exactly, but if you’re asking if there’s any changes to organization, there is none at all, I don’t, can’t think of one change we had to our sales organization in the last 6 months or so. If there’s something else you’re asking, I’m not understanding then please let me know that’s the best way that I know to answer that question.

And our next question comes from the line of Morris Ajzenman with Griffin Securities.

Just as a kind of follow-up on the electronics side, the printed circuit materials. clearly, worldwide lethargic environment for many economies been slowing down, I guess impacting you guys, and having some of the products out there. is there anything we could hang our hat on if we remain in this lethargic environment that things can pick up top line, any market share gains, anything out there or in that environment, should we expect the sluggish trends that we are experiencing here?

Morris, Brian here. My feeling about that is there’s 2 different factors to consider. The most significant factor especially short-term quarter-over-quarter is going to be the global economy. I think there is almost no doubt about that that’s a real driver here, the global economy. It seems like things are a little bit stronger in Asia in the last couple of months, but I don't know what to make of that, it's hard to say it’s a trend and really the markets are so global that, what would that mean, I am not sure, but if you know that our revenues are about the same in Q2 as for the Q1, but our aerospace revenues were down that was really made of by electronics in Asia. So a little bit more strength of electronics in Asia, but I have no idea why that it is, could just be some kind of blip that it doesn't mean anything. So there's going to be the global economy melt down, and then the other factor is going to be technology changes, technology advancement, technology introduction. I'm not talking about the materials, I'm talking about with the OEMs and the systems, what kind of technology levels they will require in order to support their new systems. I mentioned that in response to a prior question that, I’m starting to wonder, whether our most elegant product -22 SI, is a little ahead of the market, I'm not sure about that, I'm just starting to entertain that thought a little bit, so obviously if it is, then it will be a function of waiting for technology to catch up with it. There is no doubt in our minds that will happen as a matter of fact, the new development work that we are working on now, is one step further passed our most elegant product, so not always expecting the world to catch up with our most elegant product, if in fact it’s a little ahead of the world, we’re expecting it to surpass it at some point. That probably is going to be less in short-term quarter-over-quarter impact, but if the global economy changes in a significant way, then you see some short-term changes in Park's business, so there is 2 factors, one a little more long-term, middle-term let’s call it, the other one will be shorter-term.

And our next question comes from the line of Lynn Cooper [ph] with Park Electrochemical.

I have a few questions related to Kansas I guess. In prior conversations, you discuss the aircraft inventory that is private planes you said you could buy a used one for much less than a new one therefore considering the big inventory of planes, the business was not going well for the Kansas manufacturers, do you have any insight on what’s going on with that market?

You’re talking about the business jet, that’s one of our principal markets for general aviation.

Yes.

At this point, my feeling there has no significant recovery since -- when is it, 2008, you know since 2008 recession when things really fell off a cliff actually. Not a significant recovery, maybe clawing its way back a little bit. I’ve heard some talk about there will be 2014 before the business jet industry really recovers. Then there is all these people who say 2013, but we never know that could be wishful thinking. At this point, I think anybody you would say that there is a significant recovery in place is probably living in a world of wishful thinking. So our business model is not going to be dependent upon a significant recovery, we’re also working in military, in UAVs as well as helicopters. So we are not only focused with biz jets. Our opportunity though, because we are a new kid on the block still, is business opportunities not just based upon the market, but based upon penetration, based upon joint-ventures, based upon taking market share away from other companies that maybe they have been doing this a long time, that have more experience than us, but may also be a little complacent about their position in the world.

Okay. And this Kansas operation management would seem to me that a lot of people looking for work is it so difficult getting the managers, at least special requirements, that make it difficult to get the right management.

Yes, that’s exactly what my thinking was, our thinking was, over the last couple of years. But it’s been surprisingly difficult to find the right people for Park, there are a lot of the people that have worked in the aircraft industry, the big aircraft companies, the OEMs, may not be, in Kansas, I mean, may not be suited for our kind of business culture. So some are and some are not, and that’s been a little bit of a struggle. But we have pretty special requirements, not only in terms of technical ability, but also in terms of attitude, cultural perspective if you will. And probably in response to your product question, I commented that we may be looking to take market share away from others, based upon may be being the new kid on the block, being more responsive, having a higher sense of urgency, being more flexible. Whereas the other companies, some of our competitors have been doing it a long time, they are more experienced than we do, but they also may feel entrenched, may not be as motivated. So we need to hire people that are highly motivated, have a high sense of urgency, a strong sense of belonging, willing to be flexible, willing to work in multiple departments, based upon what the customer needs are. That is what we are looking to create, and it’s not been as easy as I thought it would be and based upon the same kind of reasoning you just expressed actually. All right, but just to complete the answer, Lynn, I think that we’ve made some good progress and we’re very happy with the guy, the Vice President of Aerospace for Park. I think he has done a wonderful job, very happy with him and we’re very lucky to have him, and we’re building a pretty good team there not too many open slots right now, not too many -- maybe look for some announcements that might be coming, could be 1 or 2 other key people are maybe joining our company from that area.

Okay. Could you refresh my memory on that legal action that’s absorbing the money?

No. we don’t really want to comment on them. we resolve a couple and there is something else that pops up, and we really don’t want to comment on the specific legal actions at this point, there are a couple we are working on, it’d be nice if we could resolve them and move on. But that is not something that is reserved to do, that’s for sure.

And our next question comes from the line of Jiwon Lee with Sidoti & Company.

Just a couple of quick questions if I may, Brian, you mentioned so far in the third quarter, the orders are tracking similar to the second quarter, given your mix change, I wanted to make sure that the mixes, the PCB versus composite are similar to second quarter as well, not just the total order.

Jiwon, we’ve been asked this question before and we’re declined to comment specifically, when we’re looking to just 3 weeks, we’re concerned about too much information, but nevertheless and we’d say that the trend between aerospace and electronics continues in Q3 as we saw in Q2.

Great. And these revenue opportunities that you highlighted, if you can sort of kind of put your arms around in terms of the joint venture, what would be - as these are required capital investment to get this revenue at least on the first page of it?

The capital investment?

Yes.

Okay. So remember, we said these are significant opportunities in a $100 million plus or minus $25 million range, so that’s what we’re talking about, and that would be everything and that would be the total investment.

Okay. That’s the investment side, okay.

Yes. So that would include doing development work that include maybe building factory, equipment, tooling, working capital, the enchilada.

So then what would be sort of kind of the revenue opportunities that come from that?

Extremely significant over a long period of time.

Okay. Terrific, any idea when we would have a little more insight into this development?

No, but I think these are at the level where we had something in hand we would announce it. And I just want to always caution you that these may or may not happen and that’s why I made the comment that these are all or nothing type opportunities, and we don’t want to bank on them. So that’s where we started also at the same time, more of a kind of formal process oriented M&A program. What we’re doing is looking at the whole universe -- and we designed a specification looking at the universe of possibilities, which probably are hundreds of companies are starting to break it down, break it down, and shorten the list and shorten the list. and at some point, we’ll be contacting companies. so we’ll do those in [parallel] and again, the reason is what, because we can’t count these all or nothing opportunities to come true, they may not.

So Brian, just for the background these...

Hey, I should say discussions are at the CEO level. These are not casual discussions.

So did you previously ever have this type of discussions with these potential joint-venture partners or is that sort of a fresh opportunities that arose as a result of your own I guess, initiative?

These are recent developments.

Okay, perfect. And for Matt, can we discuss the top 5, 10 and 20 and the makeup of it?

Sure. We have one customer for the quarter that was over 10% and it was TTM, 13.6%, the remaining top 5 are Sanmina, WUS, Viasystems and Multek, top 5 totaled 47%, almost 48% of sales. Top ten were at 65%, up 20 were 77%.

[Operator Instructions] And there being no further question, this concludes today’s question-and-answer session. I would now like to turn the call back over to Mr. Brian Shore for closing remarks.

Thank you, operator. This is Brian, thank you everybody for joining our second quarter conference call. We appreciate you taking the time to listen in. Matt and I will be around the rest of days and if you have any follow-up questions, please feel free to give us a call. So you all have a good day. Good bye now.

Ladies and gentlemen, we thank you for your participation in today’s conference. This concludes the presentation, and you may now disconnect. Have a good day.