Good afternoon, ladies and gentlemen, and welcome to TechPrecision Corporation Fiscal 2022 Third Quarter Financial Results. At this time, all participants have been placed on a listen-only mode. It is now my pleasure to turn the floor over to your host, Brett Maas with Hayden IR. Sir, the floor is yours.

Thank you. On the call today is Alex Shen, Chief Executive Officer, and Tom Sammons, Chief Financial Officer. Before we begin, I'd like to remind our listeners that management's remarks may contain forward-looking statements which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore we refer you to a more detailed discussion of risks and uncertainties in the company's filing -- financial filings with the SEC. In addition, projections as to the company's future performance -- represents management's estimates as of today, February 17th, 2022. TechPrecision assumes no obligation to revise or update these forward-looking statements. With that out of the way, I'd like to turn the call over to Alex Shen, Chief Executive Officer to provide opening remarks. Alex.

Thank you. Good afternoon to everyone. Thank you for joining us. The third quarter of fiscal year 2022 was a strong quarter for capturing new sales orders. We increased our backlog to $35.2 million at December 31, 2021. This is up significantly from $26.4 million at September 30, 2021. Furthermore, we have secured additional sales orders of over $11 million after the December quarter end. Our financial results for the third quarter of fiscal 2022 include one entire quarter of manufacturing activity from our newly acquired STADCO subsidiary for the very first time. With the addition of STADCO, we recognized additional revenue. We also absorbed additional costs that dampened our margins and added to our selling, general, administrative, and interest expense. Fiscal year 2022 third quarter financial performance was significantly impacted by an unfavorable project mix which contributed to both lower revenue and lower margins. And by higher unabsorbed labor and overhead. In general, our third quarter is always challenging given the reduced production hours due to the Thanksgiving holidays and the Christmas holidays. Concluding my opening statements, we believe business prospects are strong. These strong business prospects are evidenced by the significant increase in new sales orders. We expect to see revenue growth and improved profitability in future quarters. I'd like to turn the call over to our CFO, Tom Sammons, to continue with the review of our fiscal 2022 third quarter results. Tom.

Thank you, Alex. Net sales for the third quarter of fiscal year 2022 were $6.5 million or 82% higher when compared to the same quarter a year ago as we added a full quarter of STADCO revenue. We recorded an increase in revenue in our defense markets, which more than offset a decrease in precision industrial revenue. Our defense backlog remains strong as new orders captured in the quarter and after are largely from our prime defense contractors. Costs of sales were $6 million resulting in a gross profit of 7.3% in the third quarter of fiscal year 2022, compared to a gross profit of 19.8% in same quarter a year ago. Gross profit was $478,000, a decrease of $227,000 when compared to the same quarter last year. As Alex noted above, previously was a decline in gross profit was primarily due to an unfavorable mix of projects and higher un -absorbed labor and overhead costs. SG&A expense increased by $908,000 due to the addition of STADCO, an increase and increased outside of advisory expenses and travel-related to the STADCO acquisition. We incurred additional one-time cost in the quarter of approximately $329,000. Our operating loss is $1.2 million compared to an operating loss of $11,000 in the same period – prior year period. Interest expense increased to $95,000 from $50,000 in the same prior year quarter, as we added new debt to the balance sheet to acquire STADCO, and to fund the first full quarter of operations. As a result of the above, we recorded a net loss of $905,000 in the fiscal 2022 third quarter. Net sales for the nine months ended December 31, 2021, which included approximately four months of STADCO, were $14.7 million or 27% higher than the same period last year. Gross profit was $2.2 million…

Tom, thank you. TechPrecision is proud and honored to serve the United States Defense Industry, specifically Naval submarine industry manufacturing through its Ranor subsidiary and military aircraft manufacturing through its Stadco subsidiary. Overall, in both the Ranor and the Stadco subsidiaries, we continue to see meaningful opportunities in our defense sector, as evidenced by the significant increase in our new sales orders and in our backlog, I'm very encouraged, we're all very encouraged by the prospects for growing our revenue and increasing profitability in future quarters. A few words about the STADCO subsidiary before we take questions. STADCO is a key supplier of large flight critical components on several high profile commercial and military aircraft programs, and has been a prime supplier of parts for the Sikorsky CH-53 helicopter for over 45 years. It continues to be a supplier of critical parts for the current CH-53E model, and the new CH-53K King Stallion heavy-lift helicopter. Let me quote some publicly available facts about the CH-53 Sikorsky helicopter. The CH-53K is the only sea-based long-range heavy lift helicopter in production, and will immediately provide three times the lift capability of its predecessor. The CH-53K will further support the U.S. Marine Corps in its mission to conduct expeditionary heavy-lift assault transport of armored vehicles, equipment, and personnel to support distributed operations deep inland from a sea-based center of operations, critical in the Indo-Pacific region. The new CH-53K has heavy lift capabilities that exceed all other DOD rotary wing platforms. It is the only heavy lifter that will remain in production through 2032 and beyond. In September 2021, Sikorsky a Lockheed Martin company celebrated the first Connecticut built CH-53K heavy-lift helicopter that will be delivered to the U.S. Marine Corps. This is the first CH-53K helicopter to roll-off the Stratford, Connecticut production line.…

Certainly. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question is coming from Ross Taylor from ARS Investment Partners. Your line is live.

Thank you very much. Well, first, Alex and the team, congratulations on the really great backlog growth and the beginning of the integration of STADCO. I think that both of those steps are huge home runs and really transformational in the business. I'm not sure of the market and most of your investors quite understand, I think, how transformational it is. But in spite of the stock action, I think it really is a huge home run. So what I wanted to start off with here first is you talked about new release and mentioned the unfavorable business mix that impacted operating margins in the quarter. Can you give us an understanding of whether that was early run projects, whether it was specific projects that your --that just carried lower margins? What was it about those projects that caused them to return lower than average or a lower than normal operating margin?

I think both of us would like to answer that question together. It was on specific part numbers, and it was on mostly part numbers that were the first units of builds.

Okay. Which is what I thought it was probably the case.

I think that answers the first question. Tom, did you want to add anything else?

No, that's all that I can say that most of these projects were items that we had not build ever before. So they were new products to us, and we're still working on one final from that project that had been last said.

That one specific one, yes.

And that's a comment --

There's a couple other things that also specifically impact us, but it's hard to put together the impact level. This all crashed into -- and this is going to sound like some kind of an excuse, but the challenging, very challenging quarter includes November and December, which are Thanksgiving and Christmas holidays. The COVID impact itself cannot be denied that there was more human to human contact, and with people are getting fatigued from not contacting. I think there was more contact during this time and the COVID contact certainly increased. So some kind of impact was there as well, which, even though we don't talk about COVID; I don't like to blame COVID for everything, there certainly is an impact. Its worldwide. So we just want to state that and move on.

And then with regard to the first -- since these are first run products, first time you've made the part numbers, one would expect that you have a learning curve and that the future manufacturing should generate higher returns.

Our expectation is that our experience has been by and large mostly like that. The humans do make non-conforming products and stumble once in a while, but it gets better when we make them over and over again. Tom?

Yeah. Most of them are short run, so someone would just disappear anyway.

Right.

Yeah. With regard to you -- I tend to look at you guys as having four major federal programs, Columbia, Virginia at 15 and CH-53. Do you believe -- the federal government is still operating under a continuing resolution. Is that continuing to act as a drag at this point, do you think in some fashion?

To be honest, I don't see the correlation coming all the way down to the sub-contracting vendor base such as Ranor and STADCO. Having said that, it's not no connection. It's just the timing is not exactly immediate and it's not in sync.

Got you. The Navy, I've been reading, has been asking -- it's primed to focus on Columbia over Virginia in here as far as allocating their build resources, particularly people. And on one of the primed conference calls earlier this year, they indicated that they were basically -- the new people they were hiring were going to be going to Virginia because they needed to catch up on Virginia. Have you seen any impact or is Virginia running at the pace -- new business related to the Virginia Class running at the pace you expected to run at?

I think overall, when we look at the past two years, there has been a slowdown bottleneck interruptions on Virginia Class build that has been made public. I think the COVID impact really impacted the shipyards and that has flowed down throughout the supply chain.

It would seem to me that I noticed and it's actually interesting, I noticed that early in the Crimea situation the U.S.. sent one of its Ohio-class, what I call volley boats, cruise missile carriers into Malta on the surface. Basically, I think to demonstrate to the Russians that it was in the neighborhood. Those boats basically have a very limited life at this point in time and if they go the U.S. will lose a substantial portion of its strategic non-nuclear deterrent system. I know that Navy has not yet gotten to where they are building three Virginia boats a year, but do you believe that we will see that build a three-year push forward in an effort to make up for the fact that we're going to lose for Virginia or for Ohio-class volley boats?

Do I believe? I don't know what -- I think my honest opinion is, I'll believe it when I see it.

Okay. Would it be a problem if they did that operationally for you?

I would love to have that problem.

Okay.

I would absolutely love to have that problem. Our build sequence though is not completely in total sync with the two boats per year, our builds leaking once might build more.

Right.

We're interested in -- and while we're talking about Ranor specific, but both STADCO and Ranor were interested in not so much timing out our revenue and managing the report, but we're interested in making everything we can and getting as much revenue and as much profitability as we can.

Okay. Are you seeing new business flow, backlog flow from the Columbia Class in a meaningful way at this point yet?

I want to carefully answer this question, so I don't get the button hold by you on the next question. However, I have no degradation of business flow on Columbia Class for sure.

None for sure and one would think, do you have the same kind of relationship or non-linear relationship to build as you do in Virginia?

So the Columbia class, it's a known fact that there are 12 volts and that fit. The build cycle is much longer and very different from Virginia Class. The Virginia Class seems to build 10 boats every five years and the blocks keep going; from block 1, 2, 3, 4. We're currently on finishing off 4 and into 5. So 6 is next. There's a lot more Virginia class boats and it's a lot more continuous production type of behavior. The Columbia class is one big giant submarine. They do buy more than one -- for one submarine. On some of our items, we're not on number 1; we're on different ones.

Okay. Is Virginia better business for you than Ohio?

Better? I think it depends.

I'm thinking of it from an investor standpoint, dollars of sales and operating margins.

I think from a strategic and a tactical deployment of assets, we need the mix of both in order to be a strategic supplier to the two shipyards, we need to be able to do both so that we can have an enduring relationship with both shipyards. So I would say that they are equal.

Okay. On the STADCO side, do you know that Sikorsky up to run rate? I think they're looking at doing 18 to 20 frames a year. DO you know if they're up to run rate yet on that program?

We're -- I can tell you through public knowledge information that the low rate initial production is still going so a low rate.

We're at low rate at this stage. I actually think it's interesting at the raid on the ISIS leader, they abandoned the helicopter which actually might have been [Indiscernible] if they'd had the CH-53K in the theater at that time, which was a fairly expensive thing to end up having to leave behind. It looks to me like what we're looking at is you are basically at run rate, you're talking about 11 or 12 years to satisfy U.S. needs when they get there, and then you have foreign sales that could add another five years to it. Is that -- when you're -- so are we looking at -- do you think this is effectively a 15, 17-year program for you guys as it gets going?

Well, I think Tom did some analysis and it's in double-digits for sure.

And I've seen various numbers attached to value per airframe of $1million to $1.5 million for you guys per airframe. When I build a model, is the low end of that number a realistic number to use?

I don't think we ever tell you things like that, right Ross? We leave it up to you.

I'm allowed to ask.

Absolutely.

Okay. You tell me if I'm really often totally wrong, though. I also noticed it was interesting me on the CH-53 and then we'll move on to that. The Israeli order was on place, as you said, they're not getting their first aircraft until 2025, which tells me that there's probably a pretty healthy book of business there for you guys in the next four or five years. So you're going to see that ramp pretty meaningfully because I would assume that we'd be getting something to Israel given the nature of the relationship between us and them and the aggressive use they make of their CH-53's, the Es at this point. Are you comfortable where you stand on operating margins in that business? Or how long -- what kind of run rate level, whatever does it take for you to get on the CH-53 to where you think you're at a sustainable, reasonable operating margin?

Am I comfortable? Not yet.

Okay.

Look, turn around. We will be pretty forward with when we think we're out of the woods a little bit. We will keep everybody informed. We are right in the middle of the turnaround.

That would be great. And with regard to the F-15EX, some of the same questions. It appears that they're looking at building about 19 airframes annually, which gives it about a 10 or 11 year life for the U.S. I also noticed that the [Indiscernible] -- I thought it was interesting your stock went down on the day this was announced, but it strikes me as part of the dislocation between your investors' understanding of your business potential and the realities of it. The U.S. approved the sale of 36 F-15 EXs to Indonesia, which would add two additional years to the production run, but it seems even more meaningful that Indonesia's not been a first tier U.S. defense supplier, so if we're willing to sell them the EX, it would seem that there's going to be a much bigger overseas market for the EX.

Have you had any conversations about whether that run rate would increase, and if it did, could you supply those aircraft or whether the program is expected to have a substantial foreign sales potential?

So the first question, have we had conversation? I think that, you know me, we attempt to have these conversations. I have to do my job. I think some of it gets redirected right back at me saying we can't tell you stuff like that. I then tend to ask for okay, well, how about some orders then? Well, that would be a way of telling.

Yes. And honestly, from what I think you're doing for that program, it's a little hard for that thing to get to be built without what you're doing. And so if they want to increase the run rate, it would seem that -- or extend the program, they are going to need to talk to you about your ability to fulfill that need. I sense, it's pretty much I think a central need with that airframe. While we wait for that, can you give a quick comment on thoughts of other areas? What do you see in space? What's the opportunity for you guys?

I'm not sure there has to be some opportunity.

You've worked in the past with STADCO, you've worked in the past with some of the players in the space. Are you working with any of them at this point in time?

Yes. I believe Tom said that to you.

Thank you. And then I'll pass after this one last question with it. Lockheed has built a flying model, perhaps more than one of actually, I got two questions of the next-gen fighter aircraft. Are you -- is STADCO involved in that?

I need to shut this line of questioning down, sorry.

Thank you, you've answered the question. Okay, Then I'll leave it because you won't answer my next question either. I'll let someone else coming in and have a better shot at getting questions answered. I was going to ask the B-21.

Thank you, Ross.

[Operator Instructions] Your next question is coming from Aaron Warwick from Breakout Investors. Your line is live.

Hey guys, thanks for taking the call. I want to start with the backlog, which is really just outstanding and congratulations on that. I know you've been patiently waiting for this. Some of us not so patient, but congratulations on that. And I just want to make sure I'm understanding correctly. It sounds to me like backlog is up $20 million between September 30th and now; is that what I'm -- 9 from the quarter and another $11 million after the quarter?

Definitely the nine to the quarter, the $11 million -- over $11 million are orders. As we get them, we chip away at that by recognizing revenue and shipping some other items.

I see what you're saying.

[Indiscernible]. Yeah. We know around our backlog that ends on this quarter. I don't know where I'm out at this point.

Sure.

We started with the [Indiscernible].

Nonetheless, it's impressive and then plus you've got the $6 million that you work, some of that could've been worked through backlog as well. So whatever it is, impressive number. Congratulations on that. One thing that we haven't really heard much about recently is anything you do on the medical side. What's the status of that? Are you still involved in some of the medical stuff?

So I think we try to avoid talking about single customers only, and we've carefully avoided, to try to talk about things that way. I can tell you we are Defense - centric.

Okay. Looking out into the future. How many you've, you've told us that you've got to work through some of these unfavorable contracts and so forth with STADCO. And just in general, Q3 is a difficult quarter for you. But looking at it, say 2023, 2024 and beyond, when things are really get up and rolling, what are you expecting for margins? Are you still having that expectation around 25-30% that you've talked about before?

I don't think we ever tell you our expectations with definite numbers what we expect. Tom have we done that?

We talked about what we've done historically, and obviously we would like to. This quarter was obviously not in the range that we want.

Absolutely not.

I mean If you get back to ranges that were similar to the prior year.

Sure. And what's the target though that maybe you have in mind just in general?

In general, I don't have a specific target. Depends on the business and the volume.

Okay. And then back to the backlog. Like what -- percentage wise what part of that is reno what part of it is Stadco.

We've not disclosed the backlog by company. I will just tell you that the new orders are coming in for both entities.

Excellent. Thank you, guys. Appreciate it. Appreciate all the color you gave with Ross as well. Thank you.

Thank you.

Thank you, Aaron.

Thank you. That concludes our Q&A session. I will now hand the conference back to our host for closing remarks. Please go ahead.

Thank you, everyone. Have a great day.

Thank you.

Thank you. Ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.