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spk00: Good day, ladies and gentlemen, and welcome to the Tech Precision Corporation Fiscal 2023 First Quarter Financial Results Conference Call. At this time, all participants have been placed on a 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 Maas, Investor Relations for Tech Precision. Sir, the floor is yours.
spk03: 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 questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements as contained in the Private Securities and Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we refer to a more detailed discussion of the risks and uncertainties in the company's financial bonds with SEC. In addition, projections as to the company's future performance represents management's estimates as of today, August 22nd, 2022. Tech Precision assumes no obligation to revise or update these forward-looking statements. Before I turn the call over to Alex, I've been asked to read the following by Rich McGowan, the chair of the board of Tech Precision, as follows. For the last four and a half years, Alex Shen has sat next to me at every board meeting, vociferously taking part in all aspects of the meeting with the exception of voting. Several months back, the board decided to remedy this. I'm pleased to announce that after the upcoming annual meeting, we'll be adding Alex to the fifth board member. Congratulations, Alex. 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?
spk05: Thank you, Brett. Good afternoon to everyone and thank you for joining us. The first quarter of fiscal 2022 was a significantly strong quarter for our Raynor segment. Raynor operating results improved across the board when compared to the first quarter of fiscal 2022 with higher revenue and improved gross margins. Raynor's operating income was $1.4 million compared to $427,000 year-over-year. The STATCO segment is a turnaround. With the addition of STATCO, we recognized additional revenue but also absorbed additional costs. These additional costs dampened our margins and added to our selling general and administrative expense and interest expense. Selling, general, and administrative expense included one-time costs related to the acquisition that we expect will decrease materially in future quarters. We remain highly focused on cash management and shepherding of cash through control of expenses, control of capital expenditures, customer advances, progress billing to our customers, and final invoicing at shipment. Business prospects remain strong, very strong. Our backlog was $45.9 million at June 30, 2022. And now I would like to turn the call over to our Chief Financial Officer, Tom Sammons, to continue with the review of our fiscal 2023 first quarter results Tom?
spk01: Thank you, Alex. Net sales for the first quarter of fiscal year 2023 were $7.1 million, or 107% higher when compared to the same quarter a year ago, as we added a full quarter of STATQ revenue and realized increased revenue at Raynor. We recorded an increase in revenue in our defense markets, which more than offset a small decrease in precision industrial revenue. Our defense backlog remains very strong as new orders captured within the quarter and after the quarter are primarily from our defense customers. Cost of sales were $6.3 million or $3.7 million higher due primarily to the additional cost of sales from our STATCO subsidiary. Gross profit was $817,000, slightly lower when compared to the same quarter a year ago. Gross profit was lower because of operational problems and low production levels at STATCO, leading to higher unabsorbed factory overhead. SG&A expense increased by $643,000 due to the addition of STATCO and increased spending for outside advisory services and travel related to the STATCO acquisition, including approximately $109,000 of one-time expense primarily related to the STATCO acquisition. Operating loss was $558,000 compared to an operating income of $100,000 in the same prior year period. Interest expense increased to $84,000 from $30,000 in the same prior year quarter as we added new debt to the balance sheet on August 25th to 2021 to acquire STATCO and increased our borrowings under our revolver loan. As a result of the above, we recorded a net loss of $501,000 in fiscal 2023 first quarter. compared to net income of $1.4 million in the same period a year ago, the quarter which included the forgiveness of our PPP loan and the amount of $1.3 million. Moving on to the cash flows and balance sheet, we realized the cash inflow from operating activities of $1.4 million and used $763,000 for capital expenditures and fixed asset deposits. Our total debt was $6.2 million at June 30, 2022, compared to $7.4 million at the end of March 31, 2022, as we paid down about $1 million on a revolver during the quarter. Cash balance at June 30, 2022 was $574,000, compared to $1.1 million at March 31, 2022. Working capital was $2.6 million at June 30, 2022, compared to $2.8 million at March 31, 2022. With that, I will now turn the call back over to Alex. Alex?
spk05: Tom, thank you. Tech Precision is proud and honored to serve the United States defense industry, specifically naval submarine manufacturing through its Raynor subsidiary and military aircraft manufacturing through its STATCO subsidiary. We aim to secure and maintain an enduring partnership with our customers. Overall, in both the Raynor and the STADCO subsidiaries, we continue to see meaningful opportunities in our defense sector as evidenced by the very significant increase in our sales orders and backlog. We are encouraged by the prospects for growing our revenue and increasing profitability in future quarters. 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, I am not allowed to discuss that, is based on customer requirements and the environment in which we conduct business. Additionally, before we open up for questions, the Board has asked me to read you the following message from the Board. As you know, at the upcoming Annual Stockholder Meeting, we are requesting authority to do a reverse split of the stock, which overall has been met with a positive response. We want to make it crystal clear that if approval is given at the meeting, the only reason we would proceed with the reverse stock split would be to qualify for an uplisting to a NASDAQ or similar exchange. We believe listing on such an exchange would strengthen the stock by allowing the stock to be bought by funds and institutions proscribed from investing in OTC stocks such as ours. and increase the attraction of the stock because of the possibility of investors being able to margin our stock. While a few investors have raised the specter of companies in dire financial straits who have used reverse splits in desperate failed attempts to try to save themselves from being delisted, becoming a penny stock, and ultimately completely failing, obviously, That is not our situation, and we believe any comparisons to these sinking ships is not valid. We ask that you vote in favor of the proposal and that you do so expeditiously. Thank you for your continued support. The board. Operator, we can start the Q&A.
spk00: Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one 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 one on your phone at this time if you have any questions.
spk02: And please hold while we poll for questions. And we did have a couple of questions come in.
spk00: The first question is coming from Rob Strauss. Bob is a private investor.
spk02: Bob, you may go ahead. Hey, Alex and Tom, can you hear me?
spk01: Yes, we can.
spk04: Okay, great. So, you know, Alex, first of all, congratulations for being added to the board. I consider that long overdue as it's very traditional for a CEO to be on the board. So that's giving you that full privilege is completely appropriate from my perspective. A few questions that I'm going to bounce between both you, Alex, and Tom. First of all, Tom, when I look at the Rainer gross profit margins, you know, they're quite high for the quarter. Can you comment whether or not there's any one time items in there that elevated that gross profit margin or any commentary, other commentary? Because that probably is at a level that maybe is not sustainable or at least elevated from normal levels that we would expect.
spk02: Well,
spk01: I think in previous filings, I mean, we often talk about the mix of the jobs that we have and the lumpiness of the business. And right now, we are sitting on some pretty good projects. Some of the projects that have hurt us in the past are no longer here. And that contributes to a good performance.
spk04: I think you're very sensitive to what you can say on a go-forward basis, and I don't want Alex to have to repeat that kind of similar narrative, which I understand. Flatly, were there any one-time items in there besides product mix or customer mix that would have elevated that gross profit margin?
spk01: No. Okay, great.
spk04: Then, I think a question moving to Alex would be, when we look at the STADCO performance, understanding that it takes time to ramp, integrate, as well as turn around, frankly, and you have a significant turnaround that I think investors understand well, my question is this. When you consider that operation and the pace of that turnaround, simply, is it meeting your expectations? Are you ahead or behind? Any kind of color from that perspective.
spk05: No, I don't have any other color from that perspective. I think it's pretty premature to give my audience, my shareholders, including myself, any kind of forecasting or idea that it's, you know, doing anything other than it is a turnaround. We are taking the correct measures to make sure we're shepherding cash and not solely focusing on that, but highly focused on making sure we have cash.
spk04: Okay, and one question, Alex, that you might not be able to answer as a follow-up to that STADCO point. We know that previously that company did not operate effectively to create shareholder value. I think part of that is probably the way that they operated. Part of that could have been the contracts that they wrote with their customers. Are you able to comment at all about prior contracts written that you are still working through, not specifically, but whether or not those types of contracts are still weighting down our performance of that business today?
spk05: You're delving into a question that dives into the area where I'm not going to be able to comment.
spk04: Okay. So moving on, in past calls, you have discussed quarter-to-date backlog. I have not heard that as of yet today. Is that a change of policy, or would you like to have the opportunity to tell us whether or not the $45.9 million is higher or lower on a quarter-to-date basis?
spk05: If I had something to tell you, I would have already. I don't have anything significant to tell you right now. Yeah, okay.
spk04: And I think we recognize that that blog is long.
spk05: That has been my norm is I always tell you guys quarter to date if there's something significant to report at that time.
spk04: Okay, perfect. Just two quick ones. When I consider the press release, I look at its presentation. And its presentation has changed somewhat over, I would say, the last couple of quarters. the essence of my question is effectively, Tom, is this press release that we're seeing the planned press release structure going forward, or is that indicative of the fact that you had to play some catch-up here with the 10K, and we understand the difficulty of financially integrating Stato, so on and so forth. And what I'm effectively asking you is if we went back a couple of quarters ago and we looked at a typical quarterly press release, we did in fact have a full balance sheet there. We had an income statement down to the net loss line with some supplemental information, and we also had a full cash flow statement. So just let investors know whether or not that presentation of the press release has changed going forward. or if that's just a momentary step because of what you were dealing with regarding the Stagco integration.
spk01: Yes, that's more the latter in the sense that it's a little bit abbreviated from a financial statement perspective, given the timing of getting things filed right now. But the anticipation is that we get back to what we've always done.
spk04: Great. And I would be highly supportive of that. I think, you know, the information that you used to provide, you know, is quite good. So, so I appreciate that response. Last question. Um, and I'm not sure, you know, who should answer this. Um, but you know, as a long-term investor here, um, you know, I've paid attention to the messaging of the company as well as the investor relations strategy. Um, I think in many ways you as a management team have done an excellent job in what you've been able to deliver. The backlog has dramatically increased and the company by and large should be positioned quite well for creating shareholder value in the coming quarters and years. With that said, knowing public companies fairly well, The investor relations strategy, you know, is lacking in many ways. You know, how do you think about your investor relations strategy and where you are and, you know, anything that you'd like to share regarding that?
spk05: Well, take that one under advisement. I'm not trying to avoid the question. I think it's premature to try and probably dumb of me to try to answer it right off the bat.
spk01: Well, it's definitely something we think about and how to maybe make some improvements in what we're offering.
spk04: So that's an understandable response. But I think that it has to be delved into much deeper for a company that has performed beyond just headline talk. And what I'm referring to specifically is the great strides that you have made as it relates to the backlog particularly, this company is in a much better position. And I think that data point, along with others, would allow you to message this company in a way where the shares would no longer be at $1.50 a share. It is wasted operating performance that these shares are still $1.50, and I think it is very important that the investor relations strategy gets on track, because I think if it was, the shares for all shareholders would be much, much higher. Thank you for your time and taking all my questions, and good luck in the future.
spk00: Thank you. Once again, ladies and gentlemen, if there are any questions from the lines, please press Star 1 on your phone. That's star 1 to enter the Q&A queue. The next question is coming from Ross Taylor from ARS Investment Partners. Ross, your line is live.
spk06: Thank you. First, again, congratulations, Alex. I know you won't let it go to your head and getting on the board. Can you talk a little bit more, a couple things? You mentioned one one-time cost. Can you mention any other one-time costs that were there just in aggregate? How many, what were we looking at beyond the $100 60, 180K you mentioned.
spk01: I mentioned there was 109,000 in a quarter. 109, yeah.
spk06: Was that the total one-time cost in the quarter?
spk01: Yes.
spk06: Okay, cool. Can you talk generally, Alex, about the run rate? It seems that the problem at STADCO right now is run rate on the revenue side. We don't know. We don't have enough familiarity yet with their programs. We know the CH53K. We know the F15EX. We have ideas of some of the other programs that they're working on. It seems that this quarter's run rate was a little lower than I would have expected. But then again, I won't use the L word, but the L word might apply.
spk05: We're going to end up using the L word.
spk06: No, no, no, no, we're not. We're going to find another word other than that one.
spk05: Okay.
spk06: I have an ancestor who was acquitted for ax murder, just so you understand. And that word drives me effing crazy. But getting into that, the idea of that business, we're not familiar enough as shareholders yet with the tempo of their business. Is the tempo of their business, when we're looking at things like the CH53K, the F15EX, where I think we're looking at some point in the next fiscal year, a decision by the Navy slash Marines on the uptake on the run rate for the CH-53K. I think the last budget I saw had 24 F-15EXs projected at least from one side, I think the Senate side of the budget. It would seem that you'd be doing more run rate business there. Is this just because of the L word?
spk05: Well, before we get to the L word, I think we really need to focus on the fact that this is a turnaround, so it's highly focused first before we even get into run rates of specific programs. We need to shepherd the cash. We need to concentrate on shepherding cash, managing cash effectively and efficiently, and pulling all the different levers. The backlog itself is strong, very strong, in both subsidiaries. So we need to get past the turnaround problems. So you've demonstrated... Hold on, Ross. Just one second, please. Sorry. So once we get past the stabilizing the cash situation and maintaining that stability, we can look at pulling the different execution levers. because we do have a strong backlog. We have the orders. So I think it just needs to be taken in an order of sequence. And the performance of the previous turnaround, called Raynor, has been good. And we have been able to not only maintain our gains, but grow. So I think the past history of, you know, The management before you speaks for itself. I'm not trying to pat myself on the back or Tom. I never compliment Tom much anyway. I think we just need to be carefully stepping through, solving the problems one by one, and really I say one by one, but all of them need to be simultaneously juggled. And then we can have a chance to look at things like, okay, which program that I can't talk about specifically has a run rate implication or not.
spk06: Okay. So in looking at STADCO, is the management capability what you had been looking for? Are you happy with the people you have running that business?
spk02: Well, in general, yes. Okay.
spk06: And then looking at the ability to execute on the contract, are you happy with the people on the factory floor's ability? I mean, do they have the skill set needed to produce the product in a quality fashion and the like?
spk05: Well, I think part of the turnaround is to really flesh all these items out.
spk06: Mm-hmm.
spk05: Just like at Raynor, there have been some changes, and most of them have not been with the management.
spk06: So in looking at this overall, when you look at STATCO at this point, is there anything about the business that has surprised you in a negative fashion or a positive fashion?
spk05: I don't think there's any surprises here.
spk06: Okay.
spk05: And so when you look at... I do mean to answer your question a little bit more before you go on further. So when you're talking about the satisfaction with the people, in general, I'm satisfied. And in general, we need to bring on some more talent, which we are doing so as part of our turnaround.
spk06: And as you... execute that talent, you would think that as the business builds, you're comfortable that it can achieve what you were targeting it to achieve when you acquired it or better?
spk02: Well, I target things and usually we're going to get us there.
spk06: Yes, that is true.
spk05: So just got to get that first point, you know,
spk06: Right.
spk05: One, two, three, I got to get the one.
spk06: Right. And so at this point in time, what we really are seeing is this really is you're coming into a business and you are, you have the team, you're comfortable with the resources, you're comfortable with the people, you're really in the process of kind of just pushing this forward to the next step and you don't see anything about it. When one looks at the quarter and sees two and a half million in revenue, this isn't something that you, you guys saw and were surprised by. It's something that is inside the expectations and the plan that you have.
spk05: Well, between Tom and me, he's been, you know, axe murdering me for not hitting numbers as soon as I can, but that's private. We would like to have better numbers, yes. Absolutely. The disappointment is absolutely there. We're not happy.
spk06: When you look at the opportunities between STADCO and Raynor, which of the two do you think has the broader opportunities in front of itself? Not the programs that you're already in and have won, but programs that you're looking for down the road.
spk07: Yes.
spk06: So I take that to be both. You're really excited about both of them.
spk02: I'm very excited about both.
spk06: Okay. In looking at this overall situation, so what we have, I know you won't give us forecasts, but should we look at a quarter like this in STATCO and consider that going forward we should start to see some level of improvement, or do you want to buy yourself several quarters of maneuver? Now that you're on the board, I kind of think that you probably can be more bold.
spk05: Ross, you're asking me these questions that you know I'm going to do everything to dodge, right? I will not be giving you a forecast or anybody else.
spk06: I'm going to let Tom talk a little bit.
spk01: I'll just say, obviously, we expect better.
spk06: We expect better. Thank you. And you can go back to axe murdering him. I'll let someone else have him. Okay.
spk05: Thank you, sir.
spk06: Thank you, gentlemen, and congratulations, Alan.
spk02: Thank you.
spk00: Thank you. There were no other questions in the queue at this time. I would now like to hand the call back to the management team for closing remarks.
spk05: Thank you, everyone. Have a great day.
spk00: Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.
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