TechPrecision Corporation

Good day, ladies and gentlemen, and welcome to the Tech Precision Corporation Fiscal 2022 Second Quarter Financial Results. At this time, all participants have been placed on listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Brett Mass, with Hayden Ayor. Brett, the floor is yours.

Thank you. On the call today is Alex Chen, Chief Executive Officer, and Tom Sammons, 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 question. 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 more detailed discussions 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, December 7th, 2021. Tech Precision assumes no obligation to revise or update these forward-looking statements. Furthermore, the results presented during this conference call and in our press release issued today are preliminary and subject to revision until the company files its quarterly report on Form 10-Q for the fiscal quarter ended September 30th, 2021. With that out of the way, I'd like to turn the call over to Alex Shen, Chief Executive Officer to provide opening remarks. Alex? Brett, thank you. Good day to everyone, and thank you for joining us. Our preliminary financial results for the second quarter of fiscal 2022 include 36 days of activity from our newly acquired subsidiary, StatCo. As we began to integrate the StatCo operations, we recognized additional revenue and cost of goods sold. and added to our selling general and administrative and interest expense. Our sales order backlog totals $26.4 million at September 30, 2021, which includes STATCO backlog. Since the end of the second quarter, we have booked over $13 million in new orders. We continue to see strong opportunities for both Raynor and STATCO. We have started the post-acquisition turnaround of STATCO. Key personnel and assets remain in place. We believe business prospects are good and we expect to see continued revenue growth. Our STATCO focus is on the future. And now, I'd like to turn the call over to our CFO, Tom Sammons, to continue with the review of our preliminary fiscal 2022 second quarter results. Tom? Thank you, Alex. Our preliminary net sales for the second quarter of fiscal year 2022 were $4.8 million, which included StatCo revenue for the period post-acquisition. compared to 4.7 million in the same quarter a year ago. Cost of sales were 3.9 million, or 8% higher when compared to the same quarter a year ago, resulting in a gross profit of 19.4% in the second quarter of fiscal 2022, compared to a gross profit of 23.9% in the same quarter a year ago, primarily due to higher rate of unabsorbed labor and overhead costs, lower margins on certain projects. SG&A expense increased by approximately $478,000, primarily due to the addition of STATCO SG&A expense, plus approximately $234,000 of additional costs incurred in connection with the STATCO acquisition. Interest expense increased by about $5,000 compared to the second quarter a year ago. We expect higher interest costs as we move forward with higher debt levels in fiscal 2022. As a result of the above, we recorded a net loss of $220,000 in the fiscal 2022 second quarter, compared with a net income of $271,000 in the same quarter a year ago. Net sales for the six months ended September 30, 2021, which included fiscal revenue for the post-acquisition period were $8.2 million, were about 3% higher than the same period last year. Gross profit for the six months ended September 30, 2021 was down slightly to 21.5% from 22.8% in the same period a year ago. As was the case with our second quarter, SG&A expense increased by $417,000 as we incurred costs in connection with the Statco acquisition, plus the additional Statco SG&A expense. Interest expense is lower year over year, but we expect to see an increase in interest expense as we move forward due to higher average debt levels in fiscal 2022. For the six months ended, we recorded net income of $1.2 million as we realized a one-time non-taxable gain from the forgiveness of our $1.3 million PPP loan in May of 2021. We used $1.1 million of cash in operating activities through September 30, 2021, compared to an operating cash outflow of $740,000 during the same period a year ago. Our total debt was $7.2 million at September 30, 2021, or $3.4 million higher than reported on March 31, 2021. We also added $6 million in new assets and liabilities in connection with the amended lease for the StatCo building and property. Cash balance at September 30, 2021 was $281,000 compared to $2.1 million at March 31, 2021. Working capital decreased by $1.2 million since March 31, 2021 and $5.2 million to $4.0 million as an increase in current liabilities more than offset our increase in current assets. With that, I will now turn the call back over to Alex. Thank you, Tom. A few more words about our STADCO acquisition before we take questions. STADCO sells to a blue-chip customer base that includes some of the largest OEMs and prime contractors in the defense and aerospace industries. STADCO is a key supplier of large flight-critical components on several high-profile commercial and military aircraft programs. STATCO also provides tooling, customized molds, fixtures, jigs, and dyes used in the production of aircraft components. I'd like to re-highlight some flight-capable high-profile programs with Sikorsky. STATCO has a long history of making critical, high-precision parts for the defense and civil aviation industry, national labs, various weapons programs, and space flight. It continues to do so. It has been a prime supplier of parts for the Sikorsky CH-53 helicopter for over 45 years and continues to be a supplier of critical parts for the current CH-53E model and the new CH-53K King Stallion heavy lift helicopter. Sikorsky on October 2020 announced that it will build six additional production CH-53K King Stallion helicopters under a new contract for the US Navy. The aircraft will further support the US Marine Corps in its mission to conduct expeditionary heavy lift assault transport of armored vehicles, equipment, and personnel to support distributed operations deep inland from a sea-based center of operations. These six helicopters are part of a 200-unit aircraft program of record for the US Marine Corps. Their addition makes a total of 24 CH-53K production aircraft now under contract. Under the terms of this most recent contract, known as Low Rate Initial Production, Lot 4, Sikorsky will begin delivery of the six aircraft in January 2024. This 200 aircraft program of record does not include an expected order from Israel does not include a possible order from Germany or any other export orders. Production at Sikorsky is expected to increase to as many as 24 CH-53K helicopters per year over the next several years. I'll talk a little bit more about Sikorsky. On June 25, 2021, the U.S. Navy awarded Sikorsky a contract to build nine more CH-53K King Stallion helicopters. The Lot 5 contract includes nine helicopters for a value of about $878 million and an option for a Lot 6 contract worth about $852 million. for nine more helicopters. The Lot 5 low-rate initial production contract increases the number of CH-53Ks on contract to 33. The Lot 5 aircraft are to be delivered in 2024. Finally, a reminder again that 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 my saying that I am not allowed to discuss that is based on customer requirements and the environment in which we conduct business. As a final note, the results presented during today's conference calls and in our press release issued today are preliminary and subject to revision until the company files its quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2021. Operator, we can start the Q&A.

Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, please press star 1 on your phone if you have a question at this time. And we did have a few questions come in. The first question is coming from Aaron Warwick from Breakout Investors. Aaron, your line is live.