Q2 2025 TechPrecision Corp Earnings Call
<unk> mode, a question and answer session will follow the formal presentation, but anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
I'll now turn the conference over to your host Brett Maas, managing partner of Hayden IR you may begin.
Speaker Change: Thank you on the call today is Alex Yan Chief Executive Officer, Richard Robert 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.
Speaker Change: In the private Securities Litigation reform down from 1995 actual results may differ from those discussed today and therefore, we refer you to a more detailed discussion of risks and uncertainties and the company's financial filings with SEC. In addition projections as to the company's future performance represents managements estimates as of today January 21, 2025 acquisition assumes no obligation to.
Alex Shen: Buys or update these forward looking statements, but that out of the way I'd like to turn the call over to Alex Shen She Chief Executive officer to provide opening remarks, Alex the floor is yours.
Alex Shen: Thank you Brett.
Alex Shen: Afternoon to everyone and thank you for joining us.
Speaker Change: As previously disclosed the company held its annual meeting of stockholders.
Speaker Change: December 19, 2024, and as a result, six directors were elected.
Speaker Change: Andy Levi John Moore.
Speaker Change: Walter Schenker, Alex Chen General Gene run award and Rob Strauss.
Speaker Change: On December 23rd 2024, the board appointed by unanimous vote General Jean Ren who wants to serve as chair of the board and Rob Strauss to serve as Vice chair of the board.
Speaker Change: Effective January 13 2025.
John Moore resigned as a member of the board of directors to focus on his other responsibilities.
Speaker Change: Board has decided not to fill the vacancy created by Mr. Morris resignation at this time.
Speaker Change: The composition of committees of the board is as follows the audit Committee members are Andy Levi General Jean Ren Award and Walter Schenker, Walter Schenker is the chair.
Speaker Change: The compensation Committee members are Andy Levi and Rob Strauss, Andy Levi is the compensation Committee chair.
Speaker Change: The nominating and governance Committee members are in general gene within the warrant.
Speaker Change: Walter Schenker and Rob Strauss, Rob Straus as the chair of the nominating and governance Committee.
Speaker Change: I would like to share some remarks from our board Chair General Jean Reno want and our Board Vice Chair Rob Strauss.
Speaker Change: The board of directors is committed to improve transparency for its stockholders, including the return to timely SEC filings.
Speaker Change: Enhanced accountability policies should drive better financial performance.
Speaker Change: Our renewed focus on existing operations is an immediate priority, especially at <unk>, but also.
Speaker Change: Radar.
Speaker Change: All directors are working constructively together to maximize stockholder value.
Speaker Change: As for myself as the CEO and the board of director I am looking forward to forging ahead constructively.
Speaker Change: Constructively and with alignment as a matter of fact general Jean Renoir, and Rob Strauss will both be onsite adds that go on February 10 for.
Speaker Change: For an in person Eyeball review of the operations.
Speaker Change: To help establish a firm understanding and to enable effect based operations focus one item. Additionally on January 15, 2025, Richard room Berg Chief Financial Officer of the company notified the company that he will resign from all roles with the company and its sub.
Speaker Change: <unk> effective as of February 14, 2025.
Speaker Change: Mr. Limbert resignation is not due to any disagreement with the company on any matter related to the company's operations policies or practices.
Speaker Change: <unk> replacement will be announced in due course.
Speaker Change: Yeah.
Speaker Change: Okay next we returned to our earnings call format.
Starting off with second quarter, that's that coal.
Speaker Change: Revenue was $4 $2 million or a 17% increase compared to the same period a year ago.
Speaker Change: Second quarter radar revenue was $4 8 million compared to $4 $5 million a year ago.
Speaker Change: The second quarter consolidated revenue was $8 9 million.
Speaker Change: Or 12% higher when compared to revenue of $8 million for the same period, one year ago.
Speaker Change: Consolidated gross profit was 2% lower when compared to the same period a year ago.
Speaker Change: Second quarter, Stancl operating loss of zero point $8 million.
<unk> from unexpected higher manufacturing costs on one off projects.
Speaker Change: Legacy pricing problems on core business.
Speaker Change: Machine breakdowns in the quarter that disrupted expected throughput and under absorbed overhead costs.
Speaker Change: Rain or had operating profit of $1 million in the second quarter, primarily due to favorable project mix.
Speaker Change: Customer confidence remains high as our consolidated backlog was $48 6 million at September 32024, we expect to deliver our strong backlog over the course of the next one to three fiscal years with gross margin expansion.
Speaker Change: Yeah.
Speaker Change: We remain highly focused on cash management, a critical piece of risk mitigation and continue to manage and control expenses.
Speaker Change: Capital expenditures customer advances.
Speaker Change: Progress billings and final invoicing at shipment.
Speaker Change: And now I would like to turn the call over to our CFO Richard room book to continue with the review of our second quarter results Richard.
Richard Roombook: Thank you Alex as Alex stated consolidated revenue for the second quarter or second quarter of fiscal year, 2025 was $8 9 million or 12% higher when compared to $8 million in the same quarter a year ago.
Richard Roombook: <unk> cost of revenue was $7 9 million or 14% higher than the prior year period, due primarily to higher production costs and under absorbed overhead at stature.
Richard Roombook: Consolidated gross profit was $1 million or 2% lower compared to the same quarter a year ago.
Richard Roombook: SG&A expense decreased by 0.1 million, primarily due to the decrease in spending for outside advisory services.
Richard Roombook: Operating loss was <unk> 5 million for the second quarter of fiscal 2025 and.
Richard Roombook: An improvement when compared to the same period, a year ago as rain or turned in a strong performance in Q2.
Richard Roombook: Interest expense decreased by approximately $38000 due to lower borrowing levels under our revolver loan.
Richard Roombook: Net loss for the quarter was 0.6 million compared to zero point $5 million to the same period a year ago.
Richard Roombook: Revenue was $16 9 million for the six months ended or a 10% increase over the same period, a year ago as revenue increased $1 3 million or 19% at stack count.
Richard Roombook: Cost of revenue increased by $2 1 million the result of higher production costs at <unk>.
Richard Roombook: Gross profit and gross margin both decreased as a result of those higher production costs.
Richard Roombook: SG&A increased by 6%, primarily due to a change in fair value for the votes of breakup fee.
Richard Roombook: Operating loss as a result of the breakup fee.
Richard Roombook: Operating loss expanded as a result of the breakup fee and stacked goes higher.
Richard Roombook: Production costs.
Richard Roombook: Interest expense increased slightly by 1% as overall interest costs were virtually equal to the same period a year ago.
Richard Roombook: Net loss was $2 1 million due to recurring losses at Scottsdale.
Richard Roombook: Moving on to our financial position.
Richard Roombook: Proceeds from our private placement in July provided $1 $8 million.
Richard Roombook: Our total debt was $7 1 million on September 30 of 2024 as compared to $7 6 million on March 31.
Richard Roombook: 2024.
Richard Roombook: Cash balance as of September 32024 was $132000 and availability under the revolver was $1 1 million.
Working capital was negative $1 5 million at September 32024.
Richard Roombook: Our bank debt is classified as current due to debt covenant violations.
Alex: With that I will now turn the call back over to Alex. Thank.
Alex Shen: Thank you Richard.
Alex Shen: For those on the call who may not be very familiar with our company Tech precision.
Alex Shen: Our two subsidiaries Rainer <unk> co our custom manufacturers of precision large scale fabricated metal components and precision large scale machined metal components the.
Alex Shen: The components that we manufacture our customer designed we sell to customers in two main industry sectors defense and precision industrial markets predominantly defense.
Alex Shen: 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 tech precision specific environment might discuss please understand there are real limits as to.
Alex Shen: What I can discuss and sometimes those limits do change.
Alex Shen: Precision is proud and honored to serve the United States Defense industry, specifically naval submarine manufacturing through our <unk> subsidiary and military aircraft manufacturing through our <unk> subsidiary, we aim to secure and maintain.
Alex Shen: And during partnerships with our customers overall in both the <unk> and the <unk> subsidiaries, we continue to see meaningful opportunities in our defense sector.
Alex Shen: As evidenced.
Alex Shen: And by the strength of our backlog we are encouraged by the prospects.
Alex Shen: We're growing our revenue and for increasing profitability in future quarters.
Alex Shen: Operator, please open the line for Q&A.
Speaker Change: Certainly everyone at this time, we'll be conducting a question and answer session.
Speaker Change: You have any questions or comments. Please press star one on your phone at this time we.
Speaker Change: We do ask that we're posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Speaker Change: Once again, if you have any questions or comments. Please press star one on your phone. Please hold while we poll for questions.
Speaker Change: Thank you. Your first question is coming from Ross Taylor from Rs investments Your line is live.
Ross Taylor: Thank you and first its nice to actually have a reemergence of our calls it's been a long time out I'm not sure I even recognized the voice.
Speaker Change: Yes.
Speaker Change: Oh.
Speaker Change: Yes, Sir I would like.
Speaker Change: Like to say that I'm really excited about the opportunity that currently exists to rebuild.
Speaker Change: The bridge to the company's shareholders in the future investors. It sounds like it's going to be something thats, an important step and it's been long overdue.
Speaker Change: I think that.
Speaker Change: As I said really exciting and should help us.
Speaker Change: Going forward.
Speaker Change: Second I wanted to say I thought the message sent by shareholders was exceptionally clear only two candidates gone over 40% of the vote.
Speaker Change: And that to me very clear mandate its shareholders want change they want things done to help improve the relationship we have with with you the leadership team and I'm looking forward to seeing the fruits of that.
Speaker Change: And that means I hope that all directors can work to support and further the initiatives that the new leadership team wants to put in place. The company has done a pretty deep hole for its shareholders over the last 12 to 15 months and I think at the time, we start doing something proactively to get out of it.
Speaker Change: Operating questions I wanted to ask you.
Speaker Change: How long and where do you think it's going to take whats going to take to get that go to a level, where it can produce a sustained level of profitability.
Speaker Change: Okay.
Speaker Change: Well, we're not at a profitability yet so I think the first.
Speaker Change: Few steps are really needing to first of all.
Speaker Change: Well.
Let's concentrate on basics and what's in front of me and I'll try to.
Speaker Change: Stepped through the steps the first thing on cash management, we are succeeding in cash management.
Speaker Change: And.
Speaker Change: That part of it is going.
Speaker Change: Well, we need to continue to be.
Speaker Change: Focused on more profit for <unk>.
Speaker Change: So.
Speaker Change: As I alluded to.
Speaker Change: In my remarks.
Speaker Change: The lack of profits are coming from.
Speaker Change: Four sectors that I have.
Made.
Comments on today.
Speaker Change: The first one talks about.
Speaker Change: Pricing.
Speaker Change: Unexpected.
Speaker Change: Costs.
Speaker Change: On one off projects, so we need to do either a better job on.
Speaker Change: Organizing ourselves to predict better and also we need to.
Speaker Change: Perhaps.
Speaker Change: Not do those.
Speaker Change: And that needs a good hard look to make sure and we will be engaging more thoroughly from the front end.
Speaker Change: To make sure we get those but that is a problem that we've identified to ourselves that we want to be very transparent and identified to our shareholders on the call today as well.
Speaker Change: So that's one.
Speaker Change: On legacy pricing problems on the sort of one off project.
Speaker Change: I mean the investors.
Speaker Change: Investors attended the focus on instead by two major program.
Ross Taylor: Im sorry, Ross Youre coming in a little muffled.
Speaker Change: Can you explain talk a little bit more about the one offs what are they because investors tend to see <unk> as really a play on the F 15, Es and the CH 53, K and those are big projects that appear to be moving rapidly towards run rate ramps, where each would be producing over 20.
Ross Taylor: A year and so I am curious, though.
Speaker Change: I've not heard a great deal of talk in the past about one offs. So I'm curious what type of business are these in nature, how big are they and was this just a case, where you bid badly on them or.
Ross Taylor: There were more complicated what was it that caused the losses there.
Ross Taylor: Okay. So let me break down your questions into.
Ross Taylor: My digestible chunks so.
Ross Taylor: So youre right as far as <unk> and also.
Ross Taylor: CH 53 K Sikorsky.
Ross Taylor: Marine helicopters.
Ross Taylor: Those are what we consider not one offs and core business.
Ross Taylor: And repeating business. So the one offs are.
Ross Taylor: <unk>.
Ross Taylor: If we go back on what's that Cole is stat co builds parts that fly in the air and also builds tools that builds parts that fly in the air.
Ross Taylor: The tools for example are one of the one offs there there's not a great big demand for tools, they only come once in a while.
Ross Taylor: And when they do.
Ross Taylor: They don't tend to repeat.
Ross Taylor: Only.
Ross Taylor: Very few sets of tools thats needed to build multiple parts.
Ross Taylor: As an example of a one off.
Ross Taylor: Another example of a one off would be just filler work that we need to do to fill in gaps that are caused by.
Ross Taylor: A lack of a cadence for example, some material between.
Ross Taylor: One build in another build four helicopter main gearbox part.
Ross Taylor: Those are probably two examples highly.
Ross Taylor: Highly likely examples of one off okay.
Ross Taylor: The problem today.
Ross Taylor: The problems are that you were asking on are they in pricing are they in.
Ross Taylor: So when we don't do these one offs and don't have.
Ross Taylor: Historical data, we do our best to analyze the information that's given to us by our customers.
Ross Taylor: And we based our quote on the best information available.
Ross Taylor: Yeah.
So is there a pricing problem, sometimes there is a pricing problem is there a lack of information or changing information from the customer sometimes there is.
Ross Taylor: <unk>.
Ross Taylor: More of a case by case and since it's a one off it doesn't really repeat itself very well. So we can detect patterns.
Ross Taylor: Easily that will repeat from one kind of one off to a similar kind of one off each one as well.
Ross Taylor: Basically its own animal that really needs to be.
Ross Taylor: Evaluated.
Ross Taylor: Per the situation in some situations.
Ross Taylor: Sometimes change.
Ross Taylor: Uh huh.
Speaker Change: Or do we have the capability I'm going to go on in question myself, some more to provide you more transparency and answers. Thank.
Speaker Change: Do we have the ability to when.
Speaker Change: When we detect a problem do we have the ability to be perhaps even go as far as giving it back to the customer.
Speaker Change: It depends on the situation.
Speaker Change: Answer is not a straight no it's not a straight yes, either it depends but we need to take.
Speaker Change: More steps.
Speaker Change: Both both on the front end and in the middle two.
Speaker Change: Identify these problems and involve the custom.
Speaker Change: Solving these problems before we get to a point of no return.
Speaker Change: I think.
I think we just need to.
Speaker Change: Exert more care along the way.
Stanko: Stanko continues.
Speaker Change: Turnaround process.
Speaker Change: And as we continue to add back more capability that was lost over.
Speaker Change: Over a decade of.
Speaker Change: Of decline.
Speaker Change: We're putting back more capability.
Speaker Change: And we're putting back.
Speaker Change: People that have that capability that are recognized.
Speaker Change: Having the expertise.
Speaker Change: It's been taking time.
Speaker Change:
Speaker Change: We're doing better.
Speaker Change: We need to continue to do better and a little bit faster.
Speaker Change: Sure.
Speaker Change: I have some personally some pent up.
I guess, my pants, or a little bit more on fire to myself.
Speaker Change: So I would like to see.
Speaker Change: They do a better job and I would like to see this turnaround at status quo.
Speaker Change: Faster and better and more consistently so we can finally reach.
Speaker Change: Quarter of two of our breakeven and then poking its head.
Speaker Change: <unk> above water.
Speaker Change: I'm sorry for the long explanation now.
Speaker Change: Thank you.
I will tell you I already see a change in how you are approaching these calls and I want to say thank you because I think this is a change and thats important.
Speaker Change: Yes, I appreciate the thoughtfulness, you're giving to your answers.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: If you don't mind I would like to.
Speaker Change: Maybe expanded on the two points that I made I made four points during my opening remarks.
Speaker Change: The third point on machine breakdowns in this quarter that we're reporting on that disrupted expected throughput and perhaps the.
Under absorbed overhead cost.
Speaker Change: Really it ends up being a result of the under absorbed overhead costs.
Speaker Change: Somewhat or.
Speaker Change: Are going to continue to happen depending on the ebbs and flows of the business and some mix.
Speaker Change: Highly up and down.
Speaker Change: That's the first point.
Speaker Change: We will be able to.
Speaker Change: We need to minimize it as much as we can because eliminating it.
Speaker Change: Is a good goal to have and very difficult to completely eliminate all.
Speaker Change: I'll say that much that doesn't preclude us from doing everything we can to.
Speaker Change: Minimize that.
Speaker Change: Yeah.
Speaker Change: The machine breakdowns will will be concentrating on.
Speaker Change: What.
Speaker Change: What other actions can we take against the machines that.
Speaker Change: Exhibit problems. So we have every quarter diligently have gone back to.
Speaker Change: Sure.
Speaker Change: Fix the problems that come up.
Speaker Change: There are.
Speaker Change: They're getting better.
Speaker Change: Because as we continue our.
Speaker Change: Really our pressure on.
Speaker Change: Finding a problems fixing a problem categorizing the problem prioritizing the problem.
Speaker Change: Even changing machines to a different machine that can still do the job.
Speaker Change: Sure.
Speaker Change: Were not made us money, we can't just.
Speaker Change: Sink everything into a maintenance and repair.
Speaker Change: Need to judiciously.
Speaker Change: Prioritize and take the most important one and kill each problem as it comes.
Speaker Change: In priority order.
Speaker Change: Not just the.
Not just allowed us problem, but the highly impactful problem.
Speaker Change: We will continue that and we will continue to report on that.
Speaker Change: So I don't I don't want to let go of explaining it. That's all I was trying to say, Mike and you had machine downtime and this is the September ending quarter Youre talking about so therefore, I would assume that you were able to fix that.
Speaker Change: The following quarter and that we're now at a state where the manufacturing plant is operating.
Speaker Change: As you would hope it to be operating.
I think this is taking longer because the.
Speaker Change: The things that we fix generally.
Speaker Change: Staying fairly fixed.
Speaker Change: After about 14 years of decline and <unk>.
Speaker Change: Delayed maintenance through all of that more than a decade, almost a decade and a half.
Speaker Change: Certain other things go wrong. So you make a machine robust on the left side and something goes wrong on the right side.
Speaker Change: Oversimplifying of course.
Speaker Change: But.
Speaker Change: To have it all balance out and be better is taking some time, we are doing our best we will continue to.
Speaker Change: To report on that and make things more clear.
Speaker Change: <unk>.
Speaker Change: Place operationally, where you can meet the demands of the Marine Corps Navy Slash Marine Corps, and the Air force to produce the <unk>.
Speaker Change: <unk> they need you to produce to get.
Speaker Change: F 30 F <unk> and CH 53 case up to projected run rates.
Speaker Change: Can we reach the projected run rates the answer the quick answer is yes.
Speaker Change: How are we doing it and we're doing it very carefully because you can't just look at one sliver in time, where we're not doing well we need to look at it over over time.
Speaker Change: Can we needed for example over 12.
Speaker Change: 12 to 24 month period can we meet the demand yes.
Speaker Change: If you take a bad quarter won't you didn't meet the demand there I agreed with that.
Speaker Change: The bad performance of a quarter of a month of a week.
Speaker Change: It does not extrapolate itself over a period of 12 months to 24 months.
Speaker Change: So if I hope.
Ross Taylor: I am sorry, Ross I hope that explanation makes sense.
Speaker Change: And there's obviously, an ebb and flow, but if I drive up the Merritt Parkway to Sikorsky client, where they're producing CH 53 K.
Speaker Change: You are not going to be some components are not going to be something that is keeping them from pushing those out at the rate they need to push them out over the next few years is what I hear you, saying.
Speaker Change: As usual, you'll hear very well.
Speaker Change: My wife doesn't think so by day.
Speaker Change: Okay away from that when you talk about now.
Speaker Change: Obviously, if you get up there I would assume that those programs at run rate.
Speaker Change: Change the concern about unabsorbed overhead because they would push enough revenue through to absorb them.
Speaker Change: Is that correct.
Speaker Change: It will help the unabsorbed overhead yes.
Speaker Change: But there is there's some ebbs and flows inside these core projects themselves.
Speaker Change: <unk>.
Speaker Change: So as I had alluded to before.
Speaker Change: Completely eliminating it is.
Speaker Change: Probably the more realistic way is how do I minimize it as much as possible.
Speaker Change: And also I hear you, saying, we should probably look at the company more on an annual year run rate as opposed to a quarterly run rate basis, because you kind of think if they're producing 24 CH 53 case at two one months.
Speaker Change: And in reality, it's not always going to be that.
Speaker Change: Besides some months it might be one some months it might be three or four or something of that nature that that's something that I hear you, saying is going to impact quarter to quarter, but over a 12 month period that should even out.
Speaker Change: Right you are not going to find us in the papers.
Speaker Change: The guy that stopped production that has not happened.
Speaker Change: Great.
Speaker Change: And.
Speaker Change: I wanted to switch quickly ship quickly over to Bob.
Speaker Change: Rain or and we saw that Huntington Ingalls talked about consolidated get suppliers and the like are.
Are you finding how are you finding that opportunity or are you finding and actually also as well as stats ORP stat Cowen and <unk> are you finding your customers are asking you wanted to you to take on more project responsibility in an effort to.
Speaker Change: Overcome the production bottlenecks that have been hurting, particularly with regard to the submarine program.
Speaker Change: Let me answer that with a different.
Speaker Change: Sir.
Speaker Change: And I think you'll be able to glean what I'm.
Speaker Change: <unk>.
Speaker Change: Able to say with what I'm able to say.
Speaker Change: So we have we have secured.
Speaker Change: Three tranches of supplier development funding.
Speaker Change: Mhm.
Speaker Change: And the third tranche is on the way to being fully funded.
Speaker Change: And this is.
Speaker Change: A very important.
Speaker Change: Important initiatives that has a lot of eyeballs on it from both major shipyards, Newport News shipbuilding as well as electric boat.
Speaker Change: The.
Speaker Change: Whole notion is too.
Speaker Change: Not add new capability as much as adding capacity.
Speaker Change: The arena.
Speaker Change: And adding a backup capability.
Speaker Change: The arena with multiple options in case there is.
Speaker Change: Our bottleneck at radar to relieve that bottleneck.
Speaker Change: By funding equipment grants to rain on to put in.
Speaker Change: Redundant.
Speaker Change: Second even third machines.
Speaker Change: For more capacity.
Speaker Change: So.
Speaker Change: Those efforts have been underway for <unk>.
Speaker Change: Number of years that rain on are bearing fruit now.
Hope that answers your question, yes, and they pay they pay you for that Youre not forced to sit with substantial unabsorbed overhead.
Speaker Change: <unk>.
Speaker Change: Thank you.
Speaker Change: Got it.
Speaker Change: So the unabsorbed overhead or all.
Labor hours related and not <unk>.
Speaker Change: Idaho Capex investment related okay cool.
So if we parse that out to the Capex those are capex grants that come from the units the U S government through the Navy.
Speaker Change: Sure.
Speaker Change: Through organizations that fund us.
Speaker Change: Great.
Well, yes, so I will let some others ask questions I do want to say I think that I already hear a different tone out of you.
Feel that youre more responsive.
Speaker Change: Having this far less with you Alex and so I think this is really we're entering hopefully next year will undo a lot of the damage that the last year has done thank you.
Speaker Change: Thank you.
Speaker Change: Thank you that concludes our Q&A session I will now hand, the conference back to management for closing remarks. Please go ahead.
Speaker Change: Thank you, everyone and have a great day.
Speaker Change: Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.