Greetings. Welcome to the TechPrecision Corporation Fiscal 2024 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions Please note this conference is being recorded. I will now turn the conference over to your host Brett Maas, Managing Partner of Hayden IR. You may begin.

Thank you. On the call today is Alex Shen, Chief Executive Officer; and Bobbie Lilley, the 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 as 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 financial filings with the SEC. In addition, projections as to the company's future performance represents management's estimates as of today, August 21st, 2023. 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?

Brett, thank you. Good afternoon, everyone, and thank you for joining us. Customer confidence remains high, driving a strong backlog increase. Total consolidated backlog is at a strong $46.3 million as of June 30, 2023. First quarter consolidated net sales were $7.4 million, 4% higher when compared to $7.1 million in fiscal year 2023 first quarter. On a consolidated basis, we had a net loss of $527,000. Our Stadco subsidiary reported strong revenue growth with net sales of $3 million or 26% higher than the same period one year ago. Stadco gross profit improved, reporting a loss of $588,000 versus a loss of $1.023 million from the same period one year ago, an improvement of $435,000. Ranor reported net sales of $4.5 million or a 5% decrease from the first quarter of fiscal year 2023. This decrease was due to a less favorable mix. First quarter net sales for Stadco compared favorably with the same period a year ago. Our losses have narrowed year-over-year. We expect gradual improvement in gross profit and gross margin. We expect to deliver our strong backlog of $46.3 million over the course of the next one to three fiscal years with revenue growth and gross margin expansion. We will continue to focus on tactical execution and risk mitigation, driving both subsidiaries to fully comprehend, successfully manage and successfully meet customer expectations, enabling continuous recapture and continuous retention of customer confidence. We can all clearly see the positive results of this focus, evidenced by the continued high customer confidence which enabled our strong backlog growth. We remain highly focused on cash management, a critical piece of risk mitigation and continue to manage and control expenses, capital expenditures, customer advances, progress billings and final invoicing at shipment. I would like to turn the call over now to our CFO, Bobbie Lilley, to continue with the review of our first quarter results. Bobbie?

Thank you, Alex. Net sales for the first quarter of fiscal year 2024 were $7.4 million or 4% higher when compared to the same quarter a year ago. [Technical Difficulty] Cost of sales were $6.7 million or 7% higher than the prior year period due primarily to less favorable project mix at Ranor and unabsorbed overhead at Stadco. Due to the higher cost, gross profit was $694,000 or 15% lower compared to the same quarter a year ago. . SG&A expense decreased by $101,000 or 7% primarily due to cost reductions at Stadco. Operating loss was $580,000 or 4% higher than the same quarter a year ago. Interest expense for the first quarter increased by $10,000 due to more borrowing under our revolver loan and higher loan cost amortization. We ended the quarter with $2.3 million outstanding under the revolver loan. Moving on to our financial position. Cash provided by operating activities was $115,000 and cash used for capital expenditures was $1.9 million. Financing activities provided net cash of $1.5 million. Our total debt was $7.6 million on June 30th, 2023, compared to $6.1 million at the end of March 31, 2023, as we borrowed an additional $1.7 million under the revolver loan. Cash balance at March 31, 2023 was $272,000 compared to $535,000 at March 31, 2023, I'm sorry, that's June 30, 2023 was $272,000. Working capital was $4.9 million at June 30, 2023 compared to $5.6 million at March 31, 2023. With that, I will now turn the call back over to Alex.

Thank you, Bobbie. For those on the call who may not be very familiar with our company. TechPrecision is a custom manufacturer of precision large-scale fabricated components and precision, large-scale machined metal components. The components that we manufacture are customer designed. We sell to customers in two main industry sectors, defense and precision industrial, predominantly defense. We do most of our work in industries that are highly sensitive to confidentiality which preclude us from speaking publicly about many things that a company not operating in these fields might discuss. As such, there are real limits as to what I can discuss and sometimes those limits change. Please understand that by saying that I am not allowed to discuss that is based on customer requirements and the environment in which we conduct business. Even though I have read the last statement at every conference call for the last several years, we continue to get questions both written and oral or hear about individuals making statements that what I'm saying is not accurate that it is the Board silencing me or that I alone am making these decisions. As I have said, repeatedly over and over again, we are not the ones making these rules, not me and not the Board. The decision as to what we can say is based solely and completely on rules, rules from our clients. These are not my rules. These are not the Board's rules. There are many things we would love to speak about, but we are restricted. It is the same for all of our direct competitors. Over the last several years, we have made great progress by performing good work and following instructions. This has led to about a threefold increase in stock price since the present Board took over that is a winning formula. As a final point, I do not see these clients changing these restrictions anytime in the near or even distant future. So please do not expect anything to change. Where we can speak about it, we will. But we will not jeopardize our relationships with our clients and we will not jeopardize the future orders we want and expect to receive from them. TechPrecision is proud and honored to serve the United States defense industry, specifically, naval submarine manufacturing through our Ranor subsidiary and military aircraft manufacturing through our Stadco subsidiary. We aim to secure and maintain enduring partnerships with our customers. Overall, in both the Ranor and the Stadco subsidiaries, we continue to see meaningful opportunities in our defense sector as evidenced by the strength of our backlog. We are encouraged by the prospects for growing our revenue and increasing profitability in future quarters. Operator, you can open the line for questions.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from Rob Straus, Private Investor. Rob, please proceed.

Hi, Alex. How are you today?

Good. Thank you. And you?

Good. So the first thing, I guess, is to welcome Bobbie Lilley as CFO. So congratulations, Bobbie, on your new position.

Thank you.

I have a number of questions, Alex. And, of course, you'll say what you can and can't comment about. The first one is on Ranor. And we're certainly dealing with the predictability of that business from the standpoint of, as you stated, product mix. I'm curious on two fronts. Number one, how predictable is our product mix for that business? And secondly, how does volume and pricing get incorporated into the health of our Ranor performance?

How predictable is the product mix? Well, I don't forecast. So we won't be predicting any time soon. I think that has been my mode of operation, so that should not be a surprise, correct?

Understood. I was not asking for you to predict to the broader audience. But I was referencing internally given that we have a backlog that runs off, I think, you say over one to three fiscal years, does the backlog that we have make the product mix operationally for you predictable or is that not as clear or the outcome?

The strength of the backlog does not increase the strength of any predictability of something that's lumpy and unpredictable. We do our best every day, with different factors that change the predictability. Product mix certainly is a factor. There is many different details that go into product mix that caused it to be to affect how we perform. Overall, when you smooth it out over a much longer period of time and not quarter by quarter, then your predictability or the product mix impact smooths out over time. Our reporting requires us to report quarter by quarter.

Okay. A couple of questions on Stadco. In a previous call, it was clear that we were having some equipment issues. Are you able to update us on the status of that equipment getting back up and running and making any other general Stadco plant comments as it relates to that plant running as you would expect at this time.

Well, running, as I expect, or running as I want it to don't coincide very much when we are still inside a turnaround situation. Number one. So I would like it. I want it to perform better and break down less. The many years of deferred maintenance certainly impacts what happens to our equipment, the specifics of the threats internally that deferred maintenance for over a period of years as cost, these specific threats that caused our problems last quarter that we reported have been dealt with. That doesn't mean there's no more specific threats. What it means is that those specific threats have been attacked and neutralized and with a very low probability of them happening again. However, these machines are complicated. There are many threats. Just because I dealt with one or two, it doesn't mean there won't be any more coming up. I will tell you the ones that I have attacked and neutralized. Those will not be coming back anytime soon. It's difficult for me to predict inside a turnaround, how this is going to play out and predict what else is going to break down. I guarantee there will be breakdowns. Absolutely. What are they? And how much are they? I would like to know the same thing. What our goal here is to retain customer confidence and continue to deliver good parts on time and balance that against any malfunction and still continue to resecure customer confidence and keep it. We do that every day. This is still a turnaround. But as you can see, the losses are narrowing. That's the key point. I hope I answered your question.

You did. And I think it's good news that the equipment failures that were reported recently are in fact solved. And that's, I think, an important point. Just two more points on Stadco.

Just to make sure we all understand each other on the call, for all the listeners and for all the future listeners that will play back the recording. These specific threats that impacted our earnings last quarter that were reported have been attacked and neutralized. That does not mean there are no more threats left. But those specific ones, it's very likely they won't be coming back anytime soon to plague us. We've neutralized them. Go ahead.

Understood. Thanks for the clarification. A couple of other questions on Stadco. First, in the 10-Q NT that was filed, there was a comment made about the ongoing efforts to integrate Stadco. I'm not sure of the verbiage was the integration is not yet complete, but something to that narrative. Could you help us understand what that means? And from your perspective, what you have left to go regarding the Stadco integration?

That's a very complicated and difficult questions. There's all facets of integration that need to happen. They have never had a parent company. Ranor has always had TechPrecision as the parent company. They were not a public reporting entity. Now they need to report into and roll up into a public reporting entity. Those are major pieces.

Do you think that the Stadco opportunity is as great today as you thought it was when the acquisition was made two years ago?

I don't need to think. The facts are there. This is not based on --

And not the confirmation?

That's not based on my thoughts, the facts are there. The opportunity is solid.

Okay. I'll get back into the queue and let someone else come on and ask some questions. But hopefully I'll be back. Thank you so much, Alex, for answering those questions.

Thank you.

The next question comes from Kris Tuttle with Blue Caterpillar. Please proceed. Chris, your line is live. Okay, we'll come back to Chris. We have a question from Ross Taylor with ARS Investment Partners. Please proceed, Ross.

Thank you. Alex, could you give us an idea of how much production was lost at Stadco over the prior two quarters due to these equipment issues. Not dollar amounts, but percentage of capacity, percentage of run rate, something of that nature.

A little difficult to give you a pat answer right now because that would take into some different assumptions of what ifs. I'm not trying to avoid answering the question.

Do you think that when you look at it, did we lose four weeks of production, eight weeks of production? What I'm getting at is, if you look at the numbers in Stadco?

It's not a straight -- the problem is it's not a straight-line analyst answer is the problem. There are different moving pieces. If many of them collapsed, which one did what. It's hard to understand because there's a number of different pieces of equipment. It's not just one or two. There are many. Double handfuls. So really need a much more need a lot of time to break it all down and analyze it. I usually spend my time neutralizing threats after I see them, so that they don't happen again. And probably phrase it in a way that tells us we probably lost maybe somewhere around $0.25 million, maybe half of that, maybe all of that, something like that. That's what I think for the last quarter. But again, it's difficult to go back and try to predict what could have been. And it's all in the past. My focus needs to be moving forward. And my focus needs to be, if I kill a threat, it needs to stay dead.

Okay. What I'm trying to understand is the last call, you made the comment that you never failed at a turnaround. You've done an amazing job with Ranor. It's been an unparalleled success. And while we understand it's, your famous description, lumpy, you've been able to push operating margins there into the mid-upper 30s. And that's something to be commended. Stadco is not showing anywhere near that kind of traction. Although when you bought the business, I would have thought and comments were made around the time that it was a very similar business. So therefore you should be able to generate similar investment performance on that business. I understand there are certain cost functions. So for example, we carry a 4%, 5% lower operating margin for Stadco than we do in Ranor. But you've lost a fair amount of money. We're two years into a turnaround in this business. The last two quarters have been the worst quarters. How confident are you that we're going to get back to where we're operating breakeven or above as you were prior to the last few quarters overall as a company.

So I will take you back a little bit to my previous statements. The gross profit has improved. If we compare this quarter, with the same quarter one year ago, an improvement of $435,000. Okay? We lost $1.023 million from that same period one year ago. We are closing the gap, and that is a fact. We will continue to close this gap. .

How long does it take you to close that gap?

I don't know.

You close it in this fiscal year?

Ross, please. I can't forecast that.

Okay. My guess is that you probably have a forecast for it somewhere, but I won't go into that. I would assume your Board wants to understand where things are going and how they -- how quickly they turn. You have talked about that. You guys basically have almost a non-existing investor relations effort. It's an area that really definitely needs to be improved. We get a lot of the line that you can't talk about things. But to me, the business here is while very complicated to execute, not that complicated to understand at a high level. You have two divisions. Each of these divisions has a series of known programs that it's involved in. Each of those divisions is watching known programs ramp. There are things that are going to drive business higher in each of them. We look at it figuring each business, each division, Stadco and Ranor should be able to produce $35 million, $40 million, $45 million in revenues. Those divisions should -- you've shown you can produce high 30s operating margins in Ranor. My assumption is you can produce probably high 20s towards 30 in Stadco. If you get that, you get a blended rate around 32% to 33%. You have a business that would therefore produce operating income of $24 million to $28 million annually. You have your SG&A and other expenses. You back that down, you get $14 million to $18 million and that should be free cash flow annually, which comes out to $1.5 to $2 a share in free cash flow. I actually just laid out your thesis and I did not want to talk about something that any of your customers will be upset about. I didn't reference any programs, although the programs are public knowledge. I didn't reference…

Thank you.

The next question comes from Kris Tuttle with Blue Caterpillar Investments. Please proceed.

Hi, there. Can you hear me this time?

We can.

Okay. Terrific. I did have a couple of questions. Good to see at least the numbers moving in the right direction. So that's good. My question, one of my questions is on your input costs. I'm not sure I understand like how volatile and how changeable are they from quarter-to-quarter, year-over-year? And are those things that you have embedded in your contracts to offset. I'm just curious how you handle the volatility of the input costs if you have those.

Could you please define input further?

Well, so anything that, I guess, is part of your cost of goods sold. Not including the people. But metals, materials, fasteners, sub components, subassemblies, those kind of things.

Okay. So predominantly, we are a custom manufacturer that our core capability is complex critical welding and fabrication and complex critical machining, those services. Not so much while you were talking about materials, metals, maybe to a certain extent, but not so much. So as far as the lever and a factor to really enhance, there's no low-hanging fruit there.

Okay. Yes, I understand what you're saying. Thank you. I did want to ask again a little bit about this. You mentioned closing the gap over time. And maybe the way to ask this is, if you can imagine for a moment, your operations running at the state that you are 100% satisfied with them, are we halfway to that? Is it more or less than that? I'm just trying to get a feeling for when you look at overall operations, kind of where are you? Where is it today in relation to where you would like to see it sometime in the future?

I think we would all like me to give that answer, including myself. Whatever answer I give, it's going to be some kind of a wrong answer. I have a hard and fast rule that we shall not forecast a business that's lumpy enough to bite me right in the buttocks. Therefore, rendering any type of forecast on the weather is probably not a great idea. So I'm going to stick to what works. What we need to do is concentrate. And for example, there was a problem this past quarter with absorption. Well, we need to have better absorption which means we need to have better throughput to do the absorption. So the concentration needs to be blocking and tackling every day so that we have more manufacturing output to do the absorption. Otherwise, we will continue to have unabsorbed overhead at Stadco as we described earlier.

Okay. Fair enough. I'll leave it there and we'll look forward to more progress down the road. Thank you.

Kris, thank you.

I'd now like to turn the floor back to Alex for any closing remarks.

Have a good day, everyone. Thank you very much.

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.