TechPrecision Corporation (OTC.TPCS) Q2 2023 Earnings call Transcript

TechPrecision Corporation (OTC):TPCS) Q2 2023 Earnings Call Transcript November 17, 2022

Operator: Good afternoon ladies and gentlemen. Welcome to the TechPrecision Corporation Fiscal2023 Second Quarter Financial Results conference call. After the presentation, all participants will be placed on a listening-only mode. The floor will then be open for questions and comments. Brett Maas is your host. Sir, it is your turn.

Brett Maas: We are grateful. Today’s call features Alex Shen, Chief Executive Officer, and Tom Sammons as Chief Financial Officer. Before we get started, I would like to remind the listeners that statements made by management could contain forward-looking information. Management may also make other forward-looking comments in response to questions. The Company asserts the Safe Harbor for forward looking statements contained in the Private Securities Litigation Reform Act (1996). Actual results could differ from the ones discussed today. Therefore, we refer you to a detailed discussion about the risks and uncertainties contained in the Company’s financial filings. Furthermore, projections regarding the Company’s future performance are management’s estimates as at today, November 17, 2022.

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TechPrecision is not obligated to modify or update forward-looking statements. After that, I would like to give opening remarks to Alex Shen, Chief executive officer. Alex?

Alexander Shen: Thank you, Brett. Everyone, good afternoon. Thank you for being here. Our Ranor subsidiary had another strong quarter in the second quarter of fiscal 2023. Ranor’s operating results were better than the second quarter in fiscal year 2022. There was more revenue and higher gross margins. Ranor’s net profit was $2.0million, which is a decrease of $733,000 from the previous year. Stadco is a turnaround. Stadco was an addition that allowed us to recognize additional revenue but also added costs. These costs reduced our gross margins and increased our selling, general and administration expense and interest expense. Cash management remains our top priority. This includes controlling expenses, controlling capital expenditures and customer advances.

The outlook for business prospects is strong. Our backlog stood at $49.4 millions as of September 30, 2022. This represents a $23 million increase over the September 30, 2020 quarter, which included Stadco’s backlog. To continue the review of the fiscal year 2023, second quarter, and six-month results, I will now pass the call to Tom Sammons, our CFO. Tom?

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Thomas Sammons: Alex, we are grateful. The net sales for the second quarter fiscal year 2023 was $8.5 million, 78% more than the quarter before. This is because we added a quarter of Stadco revenue as well as realized higher Ranor revenue. We saw an increase in our revenue defense This more than offsets a decline in precision industrial revenue. As new orders from defense customers were mainly captured during the quarter as well as after it, our defense backlog is still strong. The full quarter of Stadco cost-of-sales was added to $6.8m, or $2.9m more than in the previous year. This led to an increase in the cost of sales of $6.8m and $2.9m respectively. Comparing to the same quarter last year, gross profit was $1.7million or $809,000 more.

Due to Ranor’s higher operational throughput and better factory overhead absorption, gross profit was higher. SG&A expense increased by $653,000 primarily due to the addition of Stadco SG&A and increased spending for outside advisory services related to the Stadco acquisition. Our operating loss was $87,000, compared with $243,000 in that same period last year. The interest expense rose to $84,000 from $57,000 during the prior year quarter. This was due to new debt added to the balance sheet in August 2021. We also increased our borrowings under the revolver loan. Comparable to a net loss (220,000) in the previous year, we recorded $391,000 net income in fiscal 2023’s second quarter.

In fiscal 2023, the second quarter saw an accrual for $624,000 to refundable employee retention tax credit credits under CARES Act. The net sales for the six-months ended September 30, 2022 were $15.6 million, compared with $8.2 million in that period last year. This was $7.4 million more than the $4.7 million additional revenue from Stadco and a Ranor sales growth of $2.7 million. The six-months ended September 30, 2022 saw a $6.6 million increase in our cost of sales. This was primarily due to the addition of Stadco business, which was approximately one-month longer than the period last year. On a Ranor strong operating period gross profit increased by $794,000, or 45%. Stadco’s weak operating results, due to unprofitable projects and low production levels, dampen the consolidated gross Margin.

SG&A expense for the six months ended September 30, 2022, increased by $1.3 million primarily on the inclusion of the Stadco for the full reporting period and increased spending on outside advisory services due primarily to the acquisition. We experienced an operating loss in 2016 due to the above-mentioned factors, which include the integration and decreased profitability at Stadco. This compares with an operating loss that was $143,000 in the prior year. The six-month interest expense for Stadco was $167,000, compared with $87,000 during the previous year. This is due to higher revolver usage and borrowings from Stadco. For the six months ending September 30, 2022 we recorded a net loss in the amount of $110,000, compared with net income of $1.2million for the same period last year.

In the previous year, there was a $1.3 million gain from loan forgiveness under Paycheck Protection Program. Let’s now look at the cash flows, and balance sheet. Cash inflows from operations were $1.6 million. Capital expenditures were $1.1 million. Our total debt was $6million at September 30, 2022 and $7.4million at March 31, 2022. The difference is because the period ending borrowings under our revolver loans were lower by $1million. The cash balance at September 30, 2022 stood at $235,000, compared with $1.1 million at March 31, 20,22. The working capital was $3.3million at September 30, 2022 as opposed to $2.8million at the March 31 2022. Now, I’ll pass the call to Alex. Alex?

Alexander Shen: Tom, we are grateful. TechPrecision is honored and proud to serve you. United States Defense industry, particularly naval submarine manufacturing through its Ranor affiliate and military aircraft production through its Stadco affiliate. We strive to build and sustain a lasting, long-term relationship with our customers. We see significant opportunities in the defense sector in both the Ranor subsidiaries and the Stadco subsidiary, as shown by our strong backlog. The prospects are encouraging. Today, I’d like to share information on the defense sector that we serve. Specifically, naval submarine manufacturing of Columbia Class submarines. I have cited publicly available information.

The first submarine in the new class of ballistic-missile submarines is named the District of Columbia. It was built by Electric Boat for the U.S Navy. The 14 Ohio-class submarines are due to be retired in 2027. Each class is named after the first ship in the series. The design of the District of Columbia was initiated in 2007 when Electric Boat was approached by the Navy to help with the conceptual design of a new replacement for the Ohio class. This aging Ohio class was in service since the early 1980s. Each Columbia class of 12 ships will have 16 missiles. Together, they will account for approximately 70% of America’s nuclear arsenal. The nation’s most durable nuclear weapon, the submarine, is the longest and most stealthiest of its nuclear triad, which includes land-, air-, and sea-based nuclear weapons. It measures 560-feet in length and weighs 20,810 tonnes.

The United States of America will build the largest submarine yet. Its reactor will not need to be refueled over the life of its planned service. This makes it more cost-effective to operate and maximizes the ship’s time in deployment. The submarine will have a complement of missiles. It will also be equipped with Mark 48 torpedoes. The submarine will be soundproofed and feature state-of the-art sensors. This will make it the most powerful and quietest submarine ever built. The District of Columbia was designed for modular construction. With the support of over 3,000 suppliers across the country, construction is already underway. The hull modules that have been outfitted will be dragged to the Electric Boat shipyard, Groton, Connecticut. There they will be assembled and tested before being delivered to the Navy.

Electric Boat will build a 200,000-square-foot assembly building to support the project. It will be ready for the arrival of the first module in 2023. General Dynamics has made $1.8 billion in investments to expand its manufacturing and submarine design infrastructure. The construction of the lead ship is currently more than 20% complete. Electric Boat’s ongoing relationship with the nation’s ballistic missile defense fleet includes the District of Columbia. The first ballistic-missile submarine, USS George Washington, was built and designed by Electric Boat in 1959. Following this was the design and construction the lead ships of the Ethan Allen, Lafayette and Benjamin Franklin classes.

Electric Boat was responsible for the design and construction of all 18 boats in Ohio’s class. The delivery of the District of Columbia is planned for 2027. It will be ready for deployment by 2030. The Columbia class of submarines is expected to have a service life into the 2080s€. Let me remind you that most of our work is in sensitive industries. This means that we are unable to discuss many topics that might not be discussed publicly by companies that do not operate in these areas. There are limits to what I can talk about, and these limits may change from time to time. My saying that I’m not allowed to talk about that is based upon customer requirements and the business environment.

The Board also asked me to read these documents before we can openly ask questions. The company is currently preparing a application to have its common stocks listed on the NASDAQ stock marketplace. The Board will decide whether or not we can use the stockholders’ authority to reverse-split our stock, and when. We appreciate your support. Operator, we’re ready for Q&A. Please open the phone line.

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