Q1 2026 TechPrecision Corp Earnings Call
Time, all participants are in a listen only mode and we will open the floor for your questions and comments after the presentation.
Should you require operator assistance during todays conference. Please press star zero on your telephone keypad.
It is now my pleasure to turn the floor over to your host Brett Maas with Hayden IR, Brett the floor is yours.
Thank you on the call today is Alex Shan, Chief Executive Officer, and Phil P. Gorski, 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 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 financial filings with the SEC.
In addition projections as to the company's future performance represents management estimates as of today August 21, 2025 type of precision 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 Alexander Chief Executive Officer to provide opening remarks, Alex the floor is yours.
Thank you Brett.
Good afternoon to everyone.
And thank you for joining us.
Fiscal 2026 first quarter consolidated revenue was seven $4 million.
8% lower when compared to $8 million in the fiscal 2025 first quarter <unk>.
Consolidated consolidated gross profit totaled $1 million.
An increase of $800000 when compared to the first quarter of fiscal 2025.
And both <unk> and <unk> segments, our production costs decreased and margins increased.
Fiscal 2026 first quarter <unk> revenue was $4 $3 million with operating profit of one 5 million.
First quarter stand coal revenue was three 3 million with operating loss of $1 2 million.
Compared to the same period, a year ago Stat go had a $469000 improvement in operating income.
Stat goes $1 $2 million operating loss. This quarter consists of three drivers one lower revenue due to business timing and lumpiness.
Two <unk>.
Losses from onetime one off contract.
And three losses from specific first article costs.
We are actively pursuing countermeasures.
And requesting adjustments from our clients.
We remain highly focused on aggressive daily cash management.
A critical piece of risk mitigation, we continue to manage and control expenses.
Capital expenditures.
Customer advances Prague.
Progress billings and final invoicing at shipment, our tactical execution focus and success enables us to continuously re secured strategic customer confidence at both segments.
At our <unk> segment sustained delivery and installation of new equipment continues as we specifically execute the $21 million plus.
<unk> completely funded grant money from our U S Navy related customers.
Customer confidence remains high.
We reached a new milestone building our backlog to $51 million on June 32025.
This high customer confidence is leading.
Both subsidiaries stand cold and rain or to new quoting opportunities and air defense and submarine defense respectively with.
With the same customers that already know and trust or.
Our capabilities, we expect to deliver our backlog over the course of the next one to three fiscal years with gross margin expansion.
I will turn the call over now to our Chief Financial Officer, Phil Pod Gorski.
All yours. Thank you.
Alex.
As Alex just mentioned for our fiscal 2026 first quarter consolidate consolidated revenue decreased by 8% to seven.
$4 million compared to $8 million in the same period a year ago.
As we continue to focus on building our strong recurring revenue customer base.
As a result consolidated cost of revenue decreased by 18% to $6 3 million as throughput and productivity improved at both segments.
To the point consolidated gross profit increased by <unk>.
8.800 million.
<unk>.
<unk> 2 million in fiscal Q1, $2025 to $1 million in fiscal 2026 first quarter.
Resulting in a double digit year over year consolidated gross margin improvement.
Consolidated SG&A decreased by 6% to $1 5 million in.
In the fiscal 2026 first quarter, primarily due to the absence of breakup fees on a terminated <unk> acquisition.
Which was evident in the same quarter a year ago.
Fiscal 2026 first quarter interest.
<unk> expense was slightly higher due to.
Due primarily to higher amortization of debt issue costs related to extending our revolver line of credit.
Net loss was $6 million or <unk> <unk>.
<unk> per share basic and fully diluted.
Moving onto our financial position, we continue to actively manage our cash flow opt.
Operating and investing activities provided a total of $1 6 million of cash and the fiscal 2026 first quarter.
We also used $1 7 million in financing activities, primarily to pay down borrowings under the revolver alone.
Our total debt was $5 7 million on June 30, compared with $7 4 million at March 31 <unk>.
Cash balance.
June 30th was 143000 compared to 195000 at March 31 2025.
Working capital was negative on June 32025 is all of our long term debt is classified as current.
Because of certain debt covenant violations.
Now, let's take a little deeper dive into some of the segments.
<unk> sales were down year over year by less than $100000 with overall strong margin growth across all projects in Q1, resulting in improved margin drop through of seven percentage point increase and contributing $1 5 million total and gross profit for the quarter.
Relative to <unk> Q1 fiscal 2026 sales declined 300000 compared to the same period last year as we continue to focus on repeat work and not filling jobs.
<unk> experienced year over year gross profit margin improvement of 14 percentage points or 500000 stack co improved gross profit versus prior year is primarily the result of improved pricing on contracts and improved production efficiencies.
While this is an improvement the company continues to face headwinds on legacy contracts and under priced one time contracts with approximately 30% of our customers, resulting in $1 million.
In the 1 million stack, a gross profit loss for the quarter.
As Alex mentioned.
We are actively working with customers on these contracts towards recovery and new pricing.
With that I will now turn it back over to Alex.
Thank you Phil.
In closing for those on the call who may not be very familiar with our company Tech precision is a custom manufacturer.
Precision large scale fabricated components and.
Precision large scale machined metal structural components the components that we manufacture our customer designed we sell to customers in two main industry sectors defense and precision industrial markets predominantly defense.
<unk>.
We do most of our work in industries that are highly sensitive to confidentiality.
Precludes us from speaking publicly about many things that accompany not operating in tech precision specific environment might discuss please understand there are real limits as to what I can discuss and sometimes those limits do change.
Precision is proud and honored to serve the United States Defense industry, specifically naval manufacturing naval submarine manufacturing through our <unk> subsidiary and military aircraft manufacturing.
Our <unk> subsidiary, we aim to secure and maintain enduring partnerships with our customers.
Overall at both the <unk> and the <unk> subsidiaries, we continue to see meaningful opportunities in our defense sector.
As evidenced by the strength.
Of our newly reach backlog of $51 $1 million.
We are encouraged by the prospects for growing our revenue and increasing profitability in future quarters. Operator. Please open the line for Q&A.
Certainly and thank you.
Ladies and gentlemen, the floor is now open for questions if you'd like to join the queue to ask a question at this time. Please press star one on your telephone keypad.
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And we have a question from Ross Taylor from <unk> investment Partners Ross. Your line is live. Please go ahead.
Thank you and congratulations on finally getting backlog up over $50 million.
And kind of Flatlining for a while so it's nice to see that higher.
Also it is nice to see the CFO participating in the call and what I think is a meaningful way I hope that's a sign of significant change as we push forward.
I think there was a question in there Ross that is a sign of significant change in fill is fitting in really well. Thank you Rob.
You're welcome. Thank you and it's as I said, it's nice to see that change.
I'd Love to talk to you about you talked about the idea that contract.
Add contracts are basically are only which to add call.
And how long do we see them hanging over us.
Okay. So let me go to one of Bill's comments that talked about the affected <unk>.
Contracts were about 30% of customer revenue was contributing to that.
It's taken us.
A number of years to overcome.
Set of legacy contracts that were plaguing us and we are seeing good traction and we will maintain that good traction.
I would say that that's in the realm of close to $35, 40% that we've completed and made progress on already resolving and moving forward with positive pricing yes.
Yes.
Don't know how to forecast when I'll get the next tranche done, but we've been working on that.
Pretty constantly Ross.
Okay. So I'm kind of looking at it Youre, assuming you got something in the neighborhood of about $2 2 million in the contracts that were.
Problematic shall we say in the quarter just reported.
And what you are saying is that.
Yes.
That you've been able to address all of your overall mix you've been able to experience.
Over a third of those Rob on account.
Okay contracts, so that you actually can operate on them and make money on them and would not be it's Nathan assumption, yes that is correct, yes, and then to answer your other questions is this.
Are these problems.
Concentrated in one subsidiary.
I would say more yes, then no.
That's not all of them all in one subsidiary Theres still some things that happen.
But.
Predominantly all on one side, yes.
Okay.
Go ahead.
Yes, I was going to say a much lesser degree at radar.
With that.
Okay.
Does your backlog include anything from your new business areas, you mentioned the air Defense Defense.
It's all air Defense and sub defense.
Yes, and we continue to to drive and look.
For other additional opportunities within those two sectors.
Okay. So youre looking at when you're saying sub defense Youre thinking of submarines generally is.
At defense space as opposed to anti submarine warfare.
Correct. Okay at this stage, yes at this stage absolutely, yes, yes, okay.
Staff Count has been a huge bugaboo you owned it for now what about for years I think our total comp to shareholders has been.
Meaningfully north of $20 million, what you paid for it and what you invested in and what you lost from it.
That's absolutely correct.
Yeah.
Yeah.
When and it also I believe it's resulted in.
Share dilution I believe it was probably behind the move.
To acquire Votaw, which became an absolute.
Yes.
Because of the way it was handled in the way it was going to be financed.
What is it going to take and when can we expect to see steady co.
Become more of a meaningful contributor to our positive contributor to the operation.
Well I think the.
Forgive me for just stating the obvious but.
We finally had one good quarter.
That was Q4 of fiscal 'twenty five followed by <unk>.
And not so good quarter at all the important thing here is we are capable and we are showing that we're capable of having a good quarter.
My job fills job everybody's job is we need to establish thing this thing into align a trend 1.2 points make a line three points make a trend.
We're going to make it happen.
And that's what we know we can do now.
But that doesn't tell you Wendell I would like the wind to be faster. Please Alex let's move.
Yes, I was going to say given that it's been four years I think that to say that you are trying investors still.
Okay. So when we're looking at that.
Do you believe that the steps youre, taking into renegotiations can get us there over the next to where you could be on an operating basis, we should be able to see this business.
No longer contribute negatively.
Two to the Companys bottom line.
So yes.
Just not only re negotiation on legacy contracts, but our way forward needs to be filled with different types of things other than just.
Requesting assistance on existing legacy contracts, but moving forward forward contracts those are key and critical to our well being in the future and.
Feels participating.
<unk>.
Heavily on.
It's a very heavily.
So yes.
Yes, I think it is.
For us from an operational perspective, we're putting in place a number of different.
Processes controls in place to make sure that we're pricing things accordingly.
With new bids et cetera, alright, so and thats, including any.
Any of the flow down costs that come through from tech position as well alright. So we want to make sure that the segments are covering all of the cost of the organization.
But all that feel good stuff aside from answering Ross with feel good words.
We really need to get more quarters.
Profitability and show.
Your stuff in <unk>.
Actual proof yes.
Yes it.
It would seem that well.
While you did have some problems some issues with some <unk>.
Our business it really seems that whats keeping us from what do we need to be as is two factors one of which is getting <unk> to where it can operate.
In the Green.
As a business and then the second.
Is to me.
When I model. This company I keep looking at thinking you should be able to generate.
Meaningfully higher you should be generating $70 million to $100 million in revenue and I think that's possible in this sector year and the nature of what you guys do like and to do that we're talking about doing.
$18 million to $25 million in Florida, and we seem to be kind of stuck in the southern.
Ish 678 is what is being done what are you guys doing culturally.
To break away from this kind of $7 million to $8 million quarter by quarter run rate, where we can eke out a profit here or there, but it's never going to be a big one but my assumption is if you could take that business and double it.
Which is kind of what I am saying, you would end up generating a substantial amount of earnings.
And free cash flow you quickly be able to pay off the debt.
You'd be in a situation where you were.
In a much much better place what's been done.
Drive that top line.
Are you starting to hunt business or are you still waiting for the calendar.
The year.
No I think I'll answer I'll start to answer so we definitely have a pursuits list.
Alright, with a number of opportunities that we are looking to.
To move forward with.
The defense industry, the aerospace industry is.
It's not quite like the Titanic, but it takes a bit of time and a bit of effort to continue to navigate through that.
So yes, we do have pursuit list.
Attacking that.
Call it knocking door on door to door to door.
To make sure that the analysts to make sure that they are right fit for our organization as Alex had articulated we like the and we're successful at doing a lot of the repeat type work alright. It is very profitable.
<unk> for this organization and Thats the direction.
We're looking to move how long will that take.
It's one bite at a time, alright, so and Thats what were doing right now we're looking at it strategically and how do we grow the top line.
Organically.
Yes.
Take care.
What.
K with <unk>.
<unk>.
Assuming that wherever we're able to kind of get a ramp up the build rate in the Virginia class submarines like that on one level should drive.
Essentially higher revenue.
When you look at your business.
Yes, there's no doubt I think that.
The other the other hurdle, though is investment in the organization as well alright. So in order to do that actuate that we would we will need to invest in both equipment like rainwear is getting customer funded grants.
Stag co right now we have to from a strategic standpoint make those those investments secondly, I think it is utilizing the facility are both first and second shifts alright, and I think we have the ability to do that.
Sure.
The barrier, though that we have is resources.
It's tough to find the talent that we need to do this and it's tougher to keep the talent. Both both locations are very good at what we do.
Both locations are very good at training people to achieve levels of expertise.
And both locations have competitors as well as customers that.
Take our people away.
It's not something that's new it's always been this way and.
We just need to continue to fight the fight and overcome that with more volume.
Train more people there.
But one of the things that.
You referred to on.
Cultural changes I'm going to hand, it back over to Phil and also go back and forth with fill a little bit but some of our basic execution routines are coming into play well because they are actually developing into routine. So Phil had alluded in his comments.
<unk>.
Cost of revenue decreasing because of throughput and productivity improvements at both segments can you just touched on it. This is this is a basic.
Number of routines that we are executing better it's not.
It's not a one hit wonder.
As we move forward, we want to continue to monitor and audit ourselves internally to make sure. These routines.
Are continue to be in place and can continue to execute so we can reap more benefits more profit.
So as we increase our revenue.
We would like to see much better than just an even percentage of increase.
More to dropped down because we have put these routines in place so we can execute better.
At a smaller top line, so it's transferable and up scalable to a higher top line.
And we've been working this for quite a while.
Phil has different expertise being directly from the defense industry on the client side.
Some help.
He is still needs to get used to how clunky and lumpy everything is more more so than RPX was even though <unk> was really a project company of Raytheon. So it's very similar.
Yes, I think youll.
We want to see.
More throughput and more productivity gains from our basic.
<unk>.
Really.
Blocking and tackling at a very tactical person level on the floor, we put in the routines and we ourselves are auditing and monitoring the routines, where both workers. So that's helping.
Sorry for the long response to Ross, but the open.
Door to a longer explanation I would like to just.
Offer some color. Thank you.
I'm going to actually say I think.
This to me what Im hearing you say and first of all Phil I think that you combined with the addition of two directors.
Appeared to be able to be meaningfully.
<unk> This organization, which is important I think that often we struggle to see this quite honestly would be example of two insiders gifting during the quiet period I've only been in this business 40 something years.
To me that's a totally unacceptable good companies don't do that that's not acceptable.
Companies find a way to make sure they don't lose money when things are our slack.
And what I'm hearing you talk about is the ability to grow this business I didn't hear you tell me that you can't get to the.
The numbers I think get to to generate the kind of revenue.
Earnings per share here.
A meaningfully higher number than they currently are so.
All of this is very encouraging.
It can be made to happen and if it can be made to happen reasonable period of time so.
How much longer are you going to frustrate me and disappoint.
Okay.
Yes.
Again forward looking statements, we're going to do the best we can to make that happen as quickly as we can alright, certainly we we have also pressure from the board alright to do the same exact thing. So I think there's pressure from our wives too well.
Well, certainly we certainly have a job to do and.
We're focused on driving that forward.
I'd like to say I think that.
The shifts I'm seeing to me are really meaningful and they.
They should get your gaining traction it's very hard to turn organization around particularly when they were at at the top.
Im not saying you Alex.
Tom.
And so I think this focus what I'm seeing happening it was really positive.
And so thank you guys very much and good luck negotiating the lab.
60, 65% or so of renegotiating those contracts. So we can get rid of those good luck growing your business I would suggest hunting new business. It would be really useful and I heard something I never thought I'd here.
<unk> person.
Second shifts and that really excites you are focusing on the idea of.
Trying to build this business, where you can run it.
Not cheap.
<unk> should be.
Very positive, which will give you a free cash flow, which all good things flow from you can get new equipment.
Pay down your debt you can buyback stock you can make acquisitions all of that is going to come.
I am pretty I don't get excited but let's just say.
Positively inclined push.
Thank you.
Thank you. Your next question is coming from Richard <unk> from <unk> capital Advisors.
Richard Your line is live please go ahead.
Thank you. So this quarter there was a $250000 change in the contract loss provision is that correct.
Yes.
That is correct.
And was that a result of a new negotiation.
Alex refers to them as tranches of renegotiation of Redetermination of pricing et cetera was that a new one or was that a follow on from last quarter.
Hold on one second word clarifying something one second.
Okay.
Okay.
Yes, so Richard we did experience a an additional loss reserves and it is on.
That's on a one time exact one off project one off projects that is.
Ben.
I'll say it's.
Almost in our rearview mirror.
So we're hoping that Q2, it's it's going to be gone completely we're getting rents what we're working toward we've been working toward diligently. So it is a matter of shipping and getting it out and getting it out the door. So.
That'll be behind us very soon.
Okay, great. Thank you.
Hello.
Thank you. Your next question is coming from Mark home from pipeline Mark. Your line is live. Please go ahead.
Nice to see this cargo from entertaining to professional congratulations on the progress first question.
If everything went your way alright.
You've renegotiated 35% of those.
On contracts that are so hot.
How long would it take to get to a 100% if everything if everything goes your way.
I think thats the question that Ross was asking also.
There wasn't.
Where did the same way.
Hey, Mike.
Because if you have a good idea of what your obligations are under those contracts and when you're really in a position to renegotiate youre not in a position to determine.
How long it will take to renegotiate or how successful youll be in that regard but.
Given.
What you know if everything went your way.
How long would it take to get from that 35% to 100.
It's a hard one given given our customer base and so forth certainly.
Our customers are looking to ramp up I think we know what the administrations.
Agenda is.
And it does put us in a bit of a better position.
Alright.
We are so.
So for us on some items single source on others Alright.
Certainly the customers do put out to bid.
And where we're subject to.
Negotiations hard negotiations.
With each of these customers they are much bigger than our than we are for sure.
So it is putting a lot of pressure to try to reduce when we're trying to increase price.
So each one of them has unique if.
We had our way.
Which is if we had our way it would have been done already I was just going to say, we would have because of the effort is already been been efforts outgoing on this last four years. It is it is like I said before it's not quite as bad as turning the Titanic, but it is.
I'm from RPX I know, what it's like it.
It can be pretty tough negotiators and they will they will hold a hard line.
And we'd have to be willing to say no.
Certain agreements and contracts, if we're going to lose money.
It can't do it right and we need to start looking at other other opportunities and that's why the <unk>.
Your comment about pursuits.
We have a list we have customers that we're going after so I can't answer your question, specifically, Mark, but Alex did in a sense, if we had our way we'd be done.
I think the good part about the question really points to also what success have you had and we've had some.
And what Phil alluded to was.
35% to 40% of such.
Success.
So we're not incapable of success, we're not just dreaming, this and saying it on earnings call and turning it into.
Just words, we have some success, we're aiming towards more.
No that's great color.
Yes, that's great color and helps helps quite a bit thank you.
So next question if we look at <unk> in Colombia, CH, 50, <unk>, K and <unk>, where do you.
In the.
Ordering supply chain for that right.
Where we get to see from our side.
Orders get placed production schedules boeing's ramping up.
This full rate production on a lot of these things.
We're in the manufacturing process do you end up shipping products on each of those programs.
I think I'm in the place where I can't really talk about where I am because I'm embedded in.
Some of this information that I'm not supposed to talk about.
Alright.
Don't build so I can tell you that we are building on new components for new ships.
And we are building on new components for new helicopters and we are building on new components for New F 15 Es fighters.
That for sure I can tell you.
We're not.
That's all our predominant business.
We don't generally deal in.
Retrofit and other things.
Okay.
I can't really I can't really tell you about which parts of the submarine.
And charge offs.
<unk>.
I know it depends on which so so because it's intimately related to which part is in where in the manufacturing process.
<unk>.
Hi.
I'm just.
Got it.
Yes, yes.
I don't know I don't need it on a BLM.
Bank right on a line item basis, I, just trying to get a deal.
Recent steel so that when I see more subs being ordered are delivered.
Roughly in the submarine process are you on that front and the back end of that and then if you wanted to do.
Aerospace in general are you in the front end and back end in general if you don't want to dig down to the specifics of 53 KN <unk>.
Yes.
Go ahead.
We're both going to answer the same way. The go go ahead Phil.
At the beginning in the middle and the end quite frankly, alright. So right. The key is that that we certainly have capacity. We are to do more we are at.
We're subject to how quickly our customers also can supply us with customer furnished material.
So a lot of the the lumpiness that we see as well.
Relates to.
Delays from our customers getting effect that CFM as we call. It the customer furnished materials on some contracts. Conversely, they are ready to ship us material and waiting for their funding to come through so they can put it got funding on appeal because they've already got the raw materials on hand ready to ship today, yeah. So it really does.
<unk> on what it is and just like Phil was saying just now we're at the front the middle and the end or into all of it it's.
It's very specific.
As what it ends up being it's a very tactical business model that we're pursuing.
The tiny small businesses that we're running.
Perfect fit for those are capabilities in the trust that the customers have in our capabilities is high we keep demonstrating we can deliver on time.
So it doesn't really matter in the front end or the back end or the middle of the manufacturing cycle, we're demonstrating our capability to deliver on time.
That's probably a key color point, that's colored green.
Back to you.
That's been that's been evident.
And been a big part of the reason why I've stuck with you guys through all of this is that the quality there. So the bonds are in place.
Phil you were going to comment as well.
I think Alex hit it very nicely actually.
So we're ready we're ready to accept more.
Okay.
<unk> started up and we are accepting more exactly we just signed off a couple.
Today and yesterday, we infill yep.
Yup.
Great I just have one more in two parts, if we look out two or three years.
The gas obviously, it's not guidance or anything would hold you to just kind of get a feel for your.
Impression of.
How much of your revenue you think could come from programs that youre not involved with today is it something closer to 10, 30, 50 or 75% of your revenue coming from new programs, Let's say two years two to three years down the road.
So we certainly have a long.
<unk>.
We'll call it stream our long stream of existing that we have line of sight to.
We talked about the additional pursuits and different additional programs alright that we're also looking at.
Right now.
Again, it's all probability alright are you going to get one or are you going to get the other alright. So some of them can range from a.
A few million to multimillion.
As such we we could get one that's going to be multimillion dollars that we're pursuing and cash that would make up.
Third as it it would be incremental to the business, we have it could be a third of the business.
Alright, so I mean, it's a very good answer it depends it does depend does depend alright, we definitely youre looking at when you talk.
Talking about numbers in the third as opposed to saying what we are looking at programs that could double our business right or we're looking at programs that might add 5% to our business. That's what I'm just trying to get into the ballpark.
So if you're saying if you're saying that a third of your business three years from now if things go well reasonably well to be coming from new programs that would answer. My question is that is that kind of gut feel ballpark.
I would characterize that answer and say it could be.
<unk> from new programs new programs, meaning.
Program has a different kind of meaning depending on what you are talking about like if you are.
On non Virginia class non Colombia announced.
Non.
<unk>.
No.
I was really talking about new parts that today right.
Although part.
Yes, if you expand your would you expand your participation in the existing programs to me that counts.
Adding to what you have today.
As for me right.
As a person is looking forward to what youre going to do in the future I can get a decent sense as to what your contribution is to each of those programs today and how those frame is going to ramp up and get a sense as to what your revenue should be in the future and I talked with similar numbers as Ross.
But then if you increase their reach into those existing programs and or add.
Parts into new programs, then that's where we have to kind of look at adding to our model in terms of what the range of possibilities are.
And I will point out this is public information, so I'm not letting any.
Secrets out here.
Electric boat is relatively close to Rainer.
Within driving range and electric boat has run out of capacity.
In many different aspects for specific part numbers.
And that those part numbers still have to be built by somebody that they trust that that can actually make those new parts and new for the vendor not new for electric boat.
And.
<unk>.
I will say that we are part of that.
That's great second part of my question would be do you feel confident that youll be able to renegotiate everything that you're doing to.
To the point, where you feel comfortable.
Or do you think is the portion of your current slate that you will walk away from.
I'm going to let Phil take a crack at it he has been watching me and Pummeling me and Whipping me to death driving me to visit with the customers. So what should take a correct I definitely have pricing on his mind.
No.
The short answer is.
There is a likelihood we may walk away from something.
Alright, we just cannot continue to lose money on contracts I think what it's going to force though is.
Think more level set negotiations with the existing customers alright, so will there be will that be a majority of it now I think the customers themselves are very open they need to understand and they need us in business as well too I think thats key alright.
<unk>.
So to answer your question Mark there may be some but I don't feel that it's a majority of them. It is a small portion if any.
Okay.
I think the other thing to lend more color to what.
Phil just talked about.
On these large negotiations.
We are single or sole sourced.
So the customers are going to experience.
Massive problems.
Going to the secondary competitor that Hasnt made these.
And the last.
Decade or two.
So.
The probability is low the walk.
The walkaway possibility is there yes.
And we are not kidding around when we go to negotiations.
And request that they identify the risk.
Because I need to identify the risks I need to bring it back fulfill to look at fiscal impact.
And make a decision.
No we're very unwilling to walk away of course, just like our customers are unwilling to let US go they developed us were actually part of them.
More than not part of them were more than just a regular.
Off the shelf supplier, we're a custom.
Probably part of their family of custom suppliers without us they want.
Have.
A fighter.
That without us they won't have a submarine networks.
It's a big problem. So I think the idea is.
We're going to continue pushing our position understand we need to come to a mutual understanding.
Let's get the vendors healthy.
Well aside from your reliability. The fact that you are have you do have that nice leverage position of being a sole source supplier on a lot of your products.
The other major tenant.
Mike.
Now you're starting to pay it off so thank you very much.
For the open those sites it was really nice too.
These long open discussions on these calls so thank you great call. Thanks.
Thanks, Mark Thank you.
Thank you we have a follow up question from Richard Grillage. Richard Your line is live. Please go ahead.
Thank you.
So.
Your customers see what your financial performance has been.
Not necessarily on each individual contract maybe they do but I guess my question revolves around when you go.
And negotiate with your customers regarding pricing and other aspects of the contract.
Do you believe that they feel that a 30% gross margin over all is.
Is acceptable for both you and them or did they think that thats too high.
The questions.
You're in an area, where it's really confidential negotiations under NDA.
With that question, but.
But I think I can say something about that.
None of what we're asking for is outside the realm.
Achievement.
Of etc.
Okay.
Thanks.
Richard just let me give you more color nothing that I'm asking for.
As outside their allowable actions nothing.
All contained within.
No.
Ourselves also and.
Phil comes from.
A defense organization himself he understands what's what's.
What can and cannot happen.
Yes, and you bring up are also a very good point these customers have.
Access to our public information on all our finances, so they understand that I'm not seeing them when I tell them a number here look at my filings.
Would you like to go through page by page I'm ready to do that there's over 50 pages on the 10-K shortly and I.
Have done that no problem.
Yep.
Well.
I'm thinking about is in the past and I'm, saying over the last several years.
Hum.
I had thought that the company operating efficiently and effectively with higher revenues might be able to achieve a 30% gross margin. Overall, so obviously stack that was kind of thrown a monkey wrench in that but in the past I believe <unk> has achieved that.
Is that a number that is still achievable do you think.
How much of it the way you want to talk about publicly and then these calls or listened to by our customers as well as our competitors fill but go ahead and answer it with that background in mind.
Phil could you talk could you take the handcuffs off your mouth now.
[laughter].
It's duct tape I think he put on so.
So.
Answer the question differently.
We certainly are a defense contractor.
That we have to and are required to.
Be compliant with the fr and as part of that with the cash accounting alright.
And as such we know that there are limitations with how much margin that we can build into to these contract defense contracts that we have.
And as Alex indicated earlier, we are certainly compliant with that alright. So we do have again pressure to downward pressure.
On each contract.
The idea for for Stat co is too.
To try to.
Continue to replicate what we did at and have done at <unk>.
And have the same drop through.
Margin drop through it we do that Rainer I think Mark I think Richard one of the things that we can talk about and you should keep in mind is we need to earn that respect and earn that right and earn that ability to secure higher margin business, so thats easier to justify a supplier.
That's 100% on time and has gotten awarded for 100% on time delivery, 100% quality for four years in a row five years in a row six years in a row continually showing gold and gold medal winners.
Whatever the classifications are and make it easier on the client to say I want this guy.
Yes, because it's not just a matter of you, earning a higher margin, but because of your performance you are allowing the entire operation to be executed more efficiently and more profitably they lose less by paying us more.
Correct, yes.
Hopefully I'm answering your question with more color and not really <unk> talking about a number.
The shy away from a little bit. Thank you for your patience with me.
Thank you.
Thank you and we have a follow up from Ross Taylor Ross. Your line is live. Please go ahead.
Having spent time long ago on the defense business. Some of this conversation makes me very nervous actually.
Hi.
Thank you.
Very rare for me to say that.
Is it safe to say what.
These contracts, we're talking about the assumption that.
Maybe many of US have is that there.
Largely.
If not almost entirely located.
In the stack cooperation.
How much.
Troubled business.
Is.
Focused stores located in staff count.
At this point I think we've known that your relationship with electric boat.
This is a unique one they clearly years ago step through to help you to make sure they demonstrated.
A key component of their.
The operation.
How much of what we're looking at here and we're talking about here is really tied into.
The two primary program that you have.
Ah.
So we're talking about the loss leaders right.
Yes.
Yeah predominantly stanco.
The.
Okay.
I think I lost the thread of the question I thought it was how much we can do with it well.
Get out and put a different way if you had never bought tenneco, we wouldn't be at all.
Great.
We agree with that.
Yes, we would be profitable.
Profitable in <unk>, but still one subsidiary in another sense and unable to trying to have like absorbed the hell out of all the overhead and <unk>.
From.
It's like one one parent in one subsidiary Holy Crap, we need to do more.
Yes, it would give you the most.
It would improve your balance sheet. It would I mean, there are a lot of positives that will come out of it. It would leave you with the need to grow the business to absorb the overhead certainly but.
You would be.
It would not be looking at the balance sheet, where it is today, we would not be looking at the.
The investor presentation that you have today because of the issues that have come with that.
I mean, it really seems to be that what we're really talking about here.
Yes, absolutely I'm going to let Phil answer that one because he's got the fresh eyes. He came onboard when they'll go ahead, Phil just go at it so far.
So Ross Youre absolutely right.
If I look at the balance sheet on an <unk>, it's extremely strong.
I look at the balance sheet on an <unk>, it's not alright. It is certainly drawing cash.
The single month out of the organization right now except for part of Q4, which was nice to see.
The idea is again to shed.
The the unprofitable businesses.
Contracts out of that business and improve some of them improved some and to continue to focus on the ones that we have already improved and grow those yeah. So it is it is bringing stability to that organization alright.
<unk>.
Youre absolutely correct.
You had mentioned early on in your paid X amount for it you had lost X amount, alright, you're sitting with $20 million or thereabouts.
That's a lot that you could have used to invest in equipment et cetera. There is there is a strong path for recovery.
<unk> and it is again one contract at a time and as we said we've already.
<unk> worked on a 35% to 40% it is now.
We're already still working on others to Alex and the team prior to even be joining has already started that process. It just takes time.
One at a time and we're focusing on and we're getting to the root cause how can we improve efficiencies on one contract.
To make it more profitable how can we improve the actual pricing on the contract.
<unk>.
At the same time.
So to I think to answer your question.
Yes, it is Tesco no doubt.
And what you are talking about is if you can if you are partners following others core ski others.
Can either allow you to make enough money on these contracts that you can reinvest in your business or find ways to do for you in this business what the sub manufacturers electric boat and the government have done.
Yes.
That industry.
We will find that they get rid of potential bottlenecks. They improve efficiency proved deliverability, obviously this whole situation what we're seeing.
From a defense standpoint is we need more now.
<unk>.
Solving this strikes me as what we're really looking at is these are major players you don't need much money I remember at one time, we spent either teeth someone because we could be actually took overrunning so on because they couldnt make it but without them our biggest program didn't work.
This can all be solved by.
We used to be small amounts of money. It strikes me as and so the key is just finding a way that they want to work with you recognizing that it's easier to help you.
Try to re qualify someone else to do what you're doing it you have to walk away.
Yes.
Go ahead.
I completely agree with you and these are discussions and internally that we are having all the time and talking about how we move that forward alright. So.
We talk about customer engagement and so forth my gosh.
It's extremely nice to see here.
The amount of time customer spend with us the level of customer engagement.
Daily.
Exactly.
Both at both subsidiaries. So so I think I think you're right I think it's continuing to engage that customer and look for additional opportunities, whether it be customer investments and or.
Additional contracts so agreed with you.
Russ.
I'd like to once again this is to me the most encouraging call.
I've heard since I've been involved with this company and I think that I know that there are some I'm watching aftermarket trading where people are selling them im trying to figure out.
Why they are clearly listening to a different call online listening to under hearing a different message that I'm hearing I think that what I'm hearing you guys. Tell me is that you actually are becoming a professional managed organization and I think that mark was saying.
Huge improvement.
Really excited about what I'm hearing from you guys because it's the path to where we want it to be which is not a $5 stock or even the $10.
Multiple.
I'm hearing you guys say.
Things that let me think we can get there.
Youre welcome and we all want the same thing.
Thank you.
Thank you.
Thank you and this does conclude today's Q&A session. At this time I'd like to hand, the floor back to management for closing remarks.
Thank you everyone have a great day.
Thank you. This does conclude today's conference call. You may disconnect. Your lines at this time and have a wonderful day. Thank you once again for your participation.