TechPrecision Corporation (PNK:TPCS) Q2 2024 Earnings Call Transcript

TechPrecision Corporation (PNK:TPCS) Q2 2024 Earnings Call Transcript November 21, 2023

Operator: Greetings, and welcome to the TechPrecision Corporation Second Quarter Fiscal 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Brett Maas, Managing Director of Hayden IR. Thank you, sir. You may begin.

Brett Maas: Thank you. On the call today is Alex Shen Chief Executive Officer; and Bobby Lilly, 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, November 20, 2023, TechPrecision assumes no obligation to revise or update these forward-looking statements.

An engineer using a high power precision blue light engine laser for metal processing.

With the call — with that out of the way, I’d like to turn the call over to Alex Shen, Chief Executive Officer. Please go ahead.

Alex Shen: Thank you, Brett. Good afternoon to everyone. Thank you for joining us. Customer confidence remains high as our consolidated backlog was $44.6 million at September 30, 2023. For the second quarter, consolidated net sales were $8 million or 6% lower when compared to net sales of $8.5 million for the same period a year ago. For the first six months of fiscal 2024, consolidated net sales were $15.3 million or 2% lower when compared to net sales of $15.6 million for the same period a year ago. Second quarter net sales for Stadco, compared favorably with the same period a year ago. Gross profit at our Stadco subsidiary improved reporting a loss of $9,000 versus a loss of $587,000 in the first quarter of fiscal 2024. A less favorable project mix at Ranor, dampened consolidated operating income for the second quarter.

Ranor operating income was $673,000 for the quarter. Stadco operating loss was $323,000. We expect to deliver our strong backlog 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 to successfully manage and successfully meet customer expectations, enabling continuous recapture and continuous retention of customer confidence. Customer confidence is key. We can all clearly see the positive results of this focus evidenced by the continued high customer confidence, which enabled us to maintain a strong backlog. We do remain highly focused on cash management, a critical piece of risk mitigation, and we continue to manage and control expenses, capital expenditures, customer advances, progress billings and final invoicing at shipment.

I will now turn the call over to our CFO, Bobby Lilley, to continue with the review of our quarter results. Bobby?

Bobby Lilley: Thank you, Alex. Net sales for the second quarter of fiscal year 2024 were $8 million or 6% lower when compared to the same quarter a year ago, with $4.5 million for Ranor and $3.5 million for Stadco. Cost of sales were $6.9 million or 2% higher than the prior year period, due primarily to a less favorable project mix at Ranor, offset in part by better throughput at Stadco. Due to the higher costs, gross profit was $1 million or 41% lower, compared to the same quarter a year ago. SG&A expense decreased by $200,000 and or 11%, primarily due to cost reductions at Stadco. Operating loss was $597,000 and compared to an operating loss of $87,000 in the same quarter a year ago. Interest expense for the second quarter increased by $46,000 due to more borrowing under our revolver loan higher interest rates and higher loan cost amortization.

We ended the quarter with $1.9 million outstanding under the revolver loan. Net loss for the second quarter was $528,000 compared to net income of $390,000 the prior year — the prior year period included a one year — sorry, the prior year period included a onetime gain of $624,000 from an employer tax credit refund. Net sales for the first six months of fiscal year 2024 were $15.3 million or 2% lower when compared to the same period a year ago, with $9 million for Ranor and $6.3 million for Stadco. Cost of sales were $13.6 million or 4% higher than the prior year period due primarily to less favorable project mix at Ranor. Due to the higher cost gross profit was $1.7 million or 32% lower compared to last year. SG&A expense decreased by $300,000 or 9% primarily due to cost reductions at Stadco.

Operating loss was $1.2 million or $532,000 higher than the same quarter a year ago. Interest expense increased by $65,000 due to more borrowing under the revolver loan and higher interest rates. Loan cost amortization increased by $11,000. Net loss for the first six months of fiscal 2024 was $1.1 million compared to a net loss of $110,000 the prior year period included a one-time gain of $624,000 from an employer tax credit refund. Moving on to our financial position. Cash provided by operating activities was $1.3 million, cash used for capital expenditures was $2.6 million. Financing activities provided net cash of $0.9 million. Our total debt was $7.1 million on September 30, 2023, compared to $6.1 million at the end of March 31, 2023, as we borrowed an additional $1.3 million under the revolver loan.

Cash balance at March 31, 2023, was — cash balance at September 30, 2023, was $138,000 compared to $535,000 at March 31, 2023. Working capital was negative at September 30, 2023, as we reclassified all of our long-term debt to current because of certain debt covenant violations. We have requested a waiver from our lender. With that, I will now turn the call back to Alex.

Alex Shen: Bobby, thank you. 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 2 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, 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 and making these decisions. As I have said repeatedly over and over again, we are not the ones making these rules, not me, 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. And 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 by following client instructions.

That 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 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 also specifically, 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, please open the line for questions.

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Q&A Session

Operator: Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] The first question is coming from Mark Gomes from Pipeline. Mark, your line is live.

Mark Gomes: Hey, gentlemen. Welcome to renewed revenue growth. Congratulations on that. Excluding the machinery issues that you had in Stadco over the past few months, which…

Alex Shen: Mark, you are coming in a little faint.

Mark Gomes: Sure. How about this?

Alex Shen: Much better. Thank you.

Mark Gomes: Great. Excluding the machinery issues that you had at Stadco, which, as I understand, are now behind you, have you been able to deliver against your customer order expectations on a timely basis?

Alex Shen: Yes. The quick answer and the real answer is yes. We are delivering against our customers’ expectations, absolutely.

Mark Gomes: Okay, so…

Alex Shen: As a matter of fact, we just got recognitions from our customers — from several different customers for delivering 100% on time.

Mark Gomes: Fantastic. So it would be safe to say then that anything that we see in the defense sector in terms of missed expectations and submarines or what have you are not being caused by you in any way, shape or form?

Alex Shen: Correct.

Mark Gomes: Okay. Any reason to believe that this won’t continue?

Alex Shen: There’s no reason to believe we cannot execute the same way in the future. The expectation should be that we will execute the same way in the future.

Mark Gomes: Okay. So then the confidence that you’ve been excluding with regard to customer confidence, it leads me to believe that the programs that you have been in over the past year or two, three years, there’s no reason to believe that you will not continue to be a part of those programs, if not more, in the future, yes?

Alex Shen: Not so sure ever about what’s in the future. You know how I love the forecast that was sarcasm. But the expectation is we’re going to keep what we have because if we deliver according to customer expectations, that’s how we resecure their confidence and by resecuring their confidence, we resecure the PO activity in the future. So I think that’s a roundabout way of saying yes to your question.

Mark Gomes: I took it as such. Final question. We saw maybe a couple of million dollars of CapEx at Ranor a few months ago, any color commentary as to what that might have been for not specific to customers, but is that to replace old machinery, expand your capacity to do more work for customers or all of the above?

Alex Shen: We’re — we’ve wandered into an area where I’m being restricted on comments. So adding new maturing does not decrease capacity usually. So that’s probably safe to say that we’re adding capacity.

Mark Gomes: Great. That’s it from me. Thank you.

Alex Shen: Thank you. Thank you for your support.

Operator: Thank you. The next question is coming from Rob Straus from Winfield Capital. Rob, your line is live.

Rob Straus: Hi, Alex and Bobby, how are you today?

Alex Shen: Good, thank you.

Rob Straus: So I have a number of questions. And Bobby, first, it’s going to go to you. And it’s pretty specific. On the balance sheet, there’s an account called other noncurrent liability. And that went up a bunch from the fiscal year-end. And I just thought you might be able to help us understand definitionally, what that account includes? And just to help you get there — just to help you get there, so again, it’s called other noncurrent liability. And as of September 30, it is at $4.43 million versus the March 31 number of $2.7 million. So we can move on, but I’m just curious, definitionally what’s included in that line because it has moved a bit. Then either for Bobby or Alex. When we think about the CapEx that we’re spending, is that CapEx self-funded.