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spk05: Good day, everyone, and welcome to the Tech Precision Corporation third quarter fiscal 2023 financial results. At this time, all participants have been placed on a listen-only mode, and we will open the floor for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Brett Moss. Sir, the floor is yours. Thank you.
spk00: On the call today is Alex Shen, 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 is contained in the Private Securities Allegation 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 to today, February 14th, 2023. Tech 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 Alex Chen, Chief Executive Officer, to provide opening remarks. Alex, the floor is yours.
spk03: Thank you, Brett. Good afternoon to everyone, and thank you for joining us. The third quarter of fiscal year 2023 was another strong quarter for our Raynor subsidiary. Raynor operating results improved across the board when compared to the third quarter of fiscal year 2022, with higher revenue and improved gross margins. Raynor's gross profit was $1.7 million in the third quarter of fiscal year 2023. compared to $0.2 million in the same period a year ago. The STATCO subsidiary is a turnaround. Revenue was down 3% from the third quarter of fiscal year 2022. We noted improving throughput and improving gross margins over the first nine months of fiscal year 2023. Tech precision remains highly focused on cash management through control of expenses and capital expenditures, customer advances, progress billings, and final invoicing at shipment. Business prospects remain strong. Our backlog was $43.9 million at December 31, 2022, an increase of $17.5 million since September 30, 2021, the first quarter that included STATCO backlog. Now I would like to turn the call over to our CFO, Tom Sammons, to continue with the review of our fiscal year 2023 third quarter and nine-month results. Tom?
spk02: Thank you, Alex. Net sales for the third quarter of fiscal year 2023 were $8.3 million, or 28% higher when compared to the same quarter a year ago, as we realized a $1.9 million increase in revenue at Raynor. All of the increase in revenue came in the defense markets, offsetting a small decrease in the precision industrial markets. Our defense backlog remains very strong. Cost of sales were $6.8 million, or 13% higher than the prior year period, due primarily to increased net sales at Raynor and higher unobserved overhead at STATCO. Gross profit was $1.5 million, or $1 million higher when compared to the same quarter a year ago. Gross profit was higher due primarily to higher revenue, a better project mix, and strong throughput at Raynor. SG&A expense decreased by $399,000 primarily due to lower spending for outside advisory services. The same quarter a year ago included a one-time cost in connection with the STATCO acquisition. As a result of the above, we recorded operating income of $274,000 compared to operating loss of $1.1 million in the same prior year period. Interest expense for the current quarter and prior year quarter were $94,000. We recorded net income of $134,000 in fiscal 2023 third quarter compared to a net loss of $905,000 the same period a year ago. Net sales for the nine months ended December 31, 2022 with $23.9 million compared to $14.7 million in the same period a year ago, an increase of $9.2 million. The sum of additional revenue from our StatCo and Raynor segments for 4.5 million and 4.7 million respectively. Prior year nine-month period included only about four months of StatCo revenue. Our cost of sales for the nine months ended December 31, 2022, with $7.4 million higher due primarily to the inclusion of the StatCo business for the full nine months compared to only four months of the same period a year ago and the significant increase in net sales of Raynor. Gross profit increased by 1.8 million or 81% higher on a strong operating period at Raynor. Weaker operating results of STATCO from certain unprofitable projects, although production levels dampened consolidated gross margin. SG&A expenses for the nine months ended December 31, 2022, increased by $897,000, primarily due to the inclusion of STATCO for the full reporting period. As a result of the foregoing, we recorded operating loss of $371,000 compared to operating loss of $1.3 million for the prior year. Interest expense was $261,000 for the nine months ended December 31, 2022, or $79,000 higher than the same prior year period due primarily to a full nine months of interest expense recorded for the statute of term loan and higher usage under the revolver loan. We recorded net income of $24,000 for the nine months under December 31, 2022, compared to net income of $246,000 for the same period a year ago. The prior year period included a one-time gain of $1.3 million from the loan forgiveness under the Paycheck Protection Program. The current nine-month period included an accrual for $624,000 in the second quarter for refundable employee retention tax credits under the CARES Act. Moving to the cash flows and balance sheet, we realized the cash inflow from operating activities of $871,000 and used $1.3 million for capital expenditures. The total debt was $7.1 million at December 31, 2022, compared to $7.4 million at the end of March 31, 2022, as principal paid on our term loans more than offset additional borrowings under the revolver. Cash balance at December 31, 2022 was $316,000 compared to $1.1 million at March 31, 2022. Working capital was $7.2 million at December 31, 2022 compared to $2.8 million at March 31, 2022 as we extended the Raynor term loan for an additional five years in December 2022 and were able to convert a significant current liability to long-term. With that, I will now turn the call back over to Alex.
spk03: Thank you, Tom. 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 strength of our backlog. We are encouraged by the prospects for growing our revenue and increasing profitability in future quarters. Finally, a reminder 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'm not allowed to discuss that, is based on customer requirements and the environment in which we conduct business. Additionally, I would like to inform you that our applications to uplist to NASDAQ and for the reverse split have both been filed and are pending with the appropriate entities. Although there can be no assurance, that our listing application with NASDAQ and or our authorization to effect the reverse stock split will be approved by the appropriate entities in a timely manner or at all. With that said, there is nothing further that we can discuss regarding these applications or processes. Operator, we can start the Q&A. Please proceed.
spk05: Certainly. At this time, we'll be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone.
spk04: Please hold while we poll for questions. Your first question is coming from Ross Taylor from ARS Investment.
spk05: Your line is live. Thank you.
spk01: Alex, we appear to be stuck in a bit of a holding pattern with regard to both the top line, the bottom line, and backlog. And we're watching others in the subspace show meaningful increases in these areas. Can you explain to us why or where it is that we sit in this process and why we're not seeing an improved backlog and why we're not seeing an improved top line?
spk03: Well, I think the top line, if you separate it between Raynor and Stadco, you're seeing an improvement pretty big on one side.
spk01: Right? So... You define big differently than I do.
spk04: Sure.
spk01: I think we are seeing some growth, but I'm just curious, where do we sit? Obviously, when you work in these programs, the components you supply fall somewhere into the build cycle. Are you an early-stage build cycle? Are you a mid- or a late-stage build cycle? And so if we're looking at these programs starting to ramp, would we be expecting to see you – Are you putting something in that, in essence, if you supply the keel of the boat, you're early stage. If you supply, you know, something that, you know, the flagstaff, you're probably late stage. So kind of where do you sit inside that cycle?
spk03: Well, I think one of the items that we need to also consider is how our project mix affects everything all the time. using the lumpy word, the lumpiness of our top line when we're comparing quarter to quarter or even over a year, it really is subject to project mix and how due dates can expand and contract. It's part of the mix. In the past... Sorry. Go ahead. I'm also trying to answer the question on where in the build cycle we land. Some of this is stuff that I really shouldn't be discussing, whether we're in the early cycle or mid cycle or late cycle. I don't think there's any cause for concern that our backlog is not continuing to expand quarter over quarter over quarter. The business is there. We are in very good shape.
spk01: In the past, you kind of indicated that you were looking at $80 to $100 million by annual revenue run rate possibilities out of the Virginia and Columbia class boats. Would you say that's still a reasonable expectation?
spk03: In the past, I have stated that there's $100 million worth of opportunity, and I did not classify it as far as how many years it was for.
spk01: Yeah, okay. Is that still a legitimate $80 to $100 million number, a reasonable target for the opportunity you have?
spk03: The answer to the question is yes.
spk01: Okay. While we're looking at submarines, there's talk that the Australians appear to be looking for a unique design, not the British design. I think that's the Avenger class and not the Virginia class, largely because the Australians have crew issues. Their boats have, I think, 68-man crew. The British boat has a 90-man crew.
spk03: One thing they did... I'm in that place where I cannot speak at all on that. At all. I'm sorry.
spk01: Okay. I was just going to ask you if you had the capacity to produce if BE Aerospace were to include a Virginia launch module inside, would you have the floor capacity to produce without CapEx?
spk03: I'm at the point where I cannot speak anymore on that. I'm sorry. Can we change the subject, please?
spk01: understand thank you very much with statco you mentioned you have programs that you're losing money on are those programs specific programs that will end are those early stage build cycle programs where you're having to learn how to do it are those programs where It was, you know, were they bid poorly and are they going to be with us or are these things that you expect that, you know, you've shown some, it looks like you showed some pretty meaningful improvement in profitability, although, I mean, shall we say reducing the losses in STATCO. Is that something that, you know, how is that going to play out with regard to getting to profitability there? Is it going to be something that you grow into, learn your way into, or is it something that you're just going to get rid of bad business and replace it with good business?
spk03: Let me redefine or rename the words that you used. So instead of programs, let's focus on talking about contracts and POs and PO line items. So there's not so much programs that are losing money, but there's certain line items in a PO that are losing money. Some of it is highly affected because there's a lot of unabsorbed overhead. So that's a pretty direct contributor, wouldn't you say, Tom?
spk02: Yeah, but I think you have all three items. You have some things where we're starting some projects new, and you have others that were probably priced not... Legacy... Legacy... Legacy...
spk03: PO line items that are suffering from legacy pricing.
spk02: We have to work through that and get the pricing changed, and we have had some price changes on some products.
spk01: Yep. Okay. Is the unprofitability the result of component costs going up, or is it the inefficiency of your ability to build them in that facility?
spk03: I would say it's neither because Tom's explanation was spot on. Some of it is legacy pricing that we haven't been able to move up, so we need to build out those and get those shipped out. That's one. Okay. Okay. Now, looking at it, you've talked about... Sorry, sorry, sorry, Russ. And then the other one is when our absorption improves with better throughput and higher throughput, that will also ease some of the pain. So I think concentrating on those two pieces is essential in answering your question.
spk01: You've put a lot of money into CapEx in STADCO since you've acquired it. You are looking now at a significant ramp in business coming up. We have two recognized programs. We know they're involved with the F-15EX and the CH-53K. Both of those programs are seeing a significant ramp up in production run rates. So one would assume that the components, and we'll be seeing that this year and next year, next fiscal year, so that would be the fiscal year ending September 30 of this year and September 30 of next year. Do you have the capacity to produce the projected run rates for both of those programs at STADCO's facility at this point in time after the CAPEX you've put into it since you've acquired it?
spk03: I think as usual, I'm going to need to answer your question by rephrasing the question and answering what I can answer. Okay. So, without delving into areas where I can't talk about it, I can tell you that the requirements from the customer the external customers at STADCO are being satisfied with what equipment we have in place now. And the CAPEX is helping. I really can't talk too much about the actual ramp-up numbers. But I can tell you without a doubt that Our current CAPEX is definitely helping and that we are able to currently meet the requirements of the external customers, two of which are named by you just now, F15 and CH53K.
spk01: And since it's pretty clear what the ramp is going to be, I assume that you are comfortable with your ability to continue to satisfy your customer as the publicly stated ramp run rates occur.
spk03: I'm trying carefully not to talk about the publicly stated ramp rates as, uh, you know, what's out there versus they are out there. I understand.
spk01: Yeah. I'm a little confused why you can't talk to something that the Pentagon has said it's going to happen. I'm not denying what the public information is, Rob. I'm just asking if you're comfortable that you can continue to satisfy your customer, say, over the next year and a half, two years.
spk03: So far, I've been personally also speaking with them, and they continue to be satisfied.
spk01: Okay, cool. And they're not worried at this point in time? They're not pounding on you to do something different?
spk03: I think the pounding is mutual.
spk01: Okay. Okay. So, and looking at this also at this stage, you know, you're kind of running, you're looking at what kind of CapEx do you see putting into STATCO over the balance of this calendar year? I don't know yet. Is it significant? Do you see it being at the same rate it's been at since you guys have taken it over?
spk03: I will say that our concentration and our number one, number two, and number three focus is on cash. Go ahead. So I think, you know, as far as what my prediction for CapEx is, that might be my number four item. I don't know yet.
spk01: Okay. Okay, and so at this point in time, also it seems that you've put into the NASDAQ, I know you can't comment on anything, but have they given you an idea of how long it would take for them to review your request?
spk03: Ross, there's nothing further that I can discuss on that.
spk01: Okay, I'll pass it on. Let someone else reserve the right to come back. We call the witness. Excellent. Thank you.
spk05: Thank you. Once again, everyone, if you have any questions or comments, please press star, then 1 on your phone.
spk04: Please hold while I poll for questions. Thank you. That concludes our Q&A session. I will now hand the conference back to our host for closing remarks.
spk05: Please go ahead.
spk03: Thank you, everyone. Have a great day.
spk05: Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
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