TechPrecision Corporation (TPCS) Q4 FY2025 Earnings Call Transcript & Summary

Greetings. Welcome to the TechPrecision Corporation FY 2025 Fourth Quarter and Year-End Financial Results. [Operator Instructions] As a reminder, this conference call is being recorded. Now I would like to turn the call over to your host, Brett Maas with Hayden IR. Please go ahead.

Thank you. On the call today is Alex Shen, Chief Executive Officer; and Phil Podgorski, 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 estimates as of today, July 30, 2025. TechPrecision 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 Shen, Chief Executive Officer, to provide opening remarks. Alex, the floor is yours.

Brett, thank you. Good afternoon to everyone, and thank you for joining us. Fiscal 2025 fourth quarter consolidated revenue was $9.5 million, 10% higher when compared to $8.6 million in the fiscal 2024 fourth quarter. Consolidated gross profit totaled $2.1 million, 70% higher when compared with the fourth quarter of fiscal 2024. The improved consolidated operating performance for the fourth quarter resulted in net income of $0.1 million. At both Ranor and Stadco segments, methodical execution of several long-term initiatives yielded positive impacts to fourth quarter revenue and net income. Both segments also had a favorable project mix. Fourth quarter Ranor revenue was $4.7 million with operating profit of $1.2 million. Fourth quarter Stadco revenue was $4.9 million with a positive operating profit of $0.8 million. One major driver was a successful negotiation on one portion of the legacy pricing problems on core business. Fiscal 2025 full year consolidated revenue was $34 million, an increase of 8% when compared to the fiscal 2024 full year. Our Ranor segment executed on a favorable project mix, enabling sustained operating profitability. Our Stadco segment reported an overall operating loss for the fiscal year, with the fourth quarter showing profitability. We remain highly focused on aggressive daily cash management, a critical piece of risk mitigation. We continue to manage and control expenses, capital expenditures, customer advances, progress billings and final invoicing at shipment. Our tactical execution focus and success enables us to continuously resecure strategic customer confidence at both segments. At our Ranor segment, sustained performance over the last decade-plus and on-time delivery and quality areas have resulted in some massive trust and confidence from our U.S. Navy-related customers, specifically resulting in over $21 million of completely funded grant money. High customer confidence is also showcased with our backlog at $48.6 million on March 31, 2025. We expect to deliver our backlog over the course of the next 1 to 3 fiscal years with gross margin expansion. Now I will turn the call over to Phil Podgorski, our Chief Financial Officer, to continue with the review of our fourth quarter and full year fiscal 2025 results. Phil?

Thank you, Alex. Before jumping into the relevant results, I wanted to just share with you some of my perspective on the areas that I've been focusing on and will continue to focus on: first is on-time filings. We've had, unfortunately, a track record of being a little bit late; secondly, internal controls; and then third, continued integration of both Ranor and Stadco, all 3 towards improved profitability. These 3 areas of focus are interconnected and revolve around people, processes and tools to ensure that the organization is focused, aligned and looking forward. We've made progress in the last 3 to 4 months and still has a significant amount of work in front of us to go. Now on to the results. As Alex just mentioned, for our fourth quarter, consolidated revenue increased by 10% to $9.5 million compared to $8.6 million in the same period a year ago. Consolidated cost of revenue was $7.4 million, less than 1% higher than the same period a year ago as production performance improved at both segments. Consolidated gross profit was $2.1 million for the fiscal 2025 fourth quarter or a 70% increase when compared to the same quarter a year ago, with high single-digit year-over-year gross profit percentage improvement for both Ranor and Stadco segments. Consolidated SG&A was $1.7 million for the fourth quarter or $2.0 million lower, primarily due to the absence of expenses for due diligence work on the terminated Votaw acquisition, which was evident in the same period last year. Fourth quarter interest expense was lower by 12% due primarily to lower amortization of extending our revolver loan. Net income, as Alex had mentioned earlier on, was $0.1 million or $0.01 per share on both a basic and fully diluted basis. For the full fiscal year of 2025, consolidated revenue was $34 million or 8% higher than fiscal 2024, primarily due to increase of -- an increase of $1.4 million or up 10% in revenue at Stadco. Consolidated cost of revenue was $29.7 million, an increase of 8% when compared to the same period a year ago and primarily due to higher production costs at Stadco. Consolidated gross profit was $4.3 million, an increase of about 5% compared with the prior -- the period a year ago, with Ranor increased profit of 25% for the fiscal 2025 year. Consolidated SG&A totaled $6.5 million or $2.3 million lower than prior year due primarily to the absence of expenses in connection with the due diligence work on the terminated Votaw acquisition. Consolidated operating loss was $2.2 million for the fiscal year 2025 compared with $4.6 million in fiscal 2024 or $2.5 million year-over-year improvement, again primarily related to improved margin drop-through for Ranor and reduced SG&A as noted above, however, offset partially by higher production costs at Stadco. Interest expense was up 4% due to increased borrowings under the revolver loan, and net loss for the full year was $2.7 million or $0.29 per share on a basic and fully diluted basis. From a Q4 segment perspective, Ranor continued to perform well with top line growth of 3% to $4.7 million and strong gross margin drop-through of 27% or up 8% compared with prior year. Backlog for Ranor continues to be strong with $21.1 million at March 2025 and on par with last year as well for the same period. Stadco Q4 revenue grew by 5% to $4.9 million with margin drop-through of 17% or plus 8% year-over-year. The major driver of the margin drop-through relates to reversal of contract loss provisions resulting from successful negotiations on 1 portion of the legacy pricing problems. Stadco backlog of $27.6 million is down slightly by $1.3 million versus prior year, however, relates only to the timing of purchase orders. Moving on to our financial position, we continue to actively manage cash as Alex had noted earlier. Financing activities provided $1.7 million in cash through the fiscal year ended on March 31, 2025, primarily from proceeds from our private placement offering in July of 2024. We used cash in operations and investment activities of $0.6 million and $1.1 million, respectively. Our total debt was $7.4 million on March 31, 2025 compared to $7.6 million on March 31, 2024. Cash balance on March 31, 2025, was $195,000 compared to $138,000 for March 31, 2024. Working capital was negative on March 31, 2025, as all of our long-term debt is classified as current because of certain debt covenant violations. With that, I'll now turn it back to Alex.

Thank you, Phil. In closing, for those on the call who may not be very familiar with our company, TechPrecision is a custom manufacturer of precision large-scale fabricated metal 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 markets, 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 TechPrecision's specific environment might discuss. Please understand there are real limits as to what I can discuss and sometimes those limits do change. TechPrecision is proud and honored to serve the United States defense industry, specifically naval submarine manufacturing through our Ranor subsidiary and military aircraft manufacturing through our Stadco subsidiary. We aim to secure and maintain enduring partnerships with our customers. Overall, at 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 Q&A.

[Operator Instructions] And the first question today is coming from Kris Tuttle with Blue Caterpillar.

Congratulations on all the operational improvements that you guys have made. I know it hasn't been easy. A couple of questions for you. Internally, if you were to qualitatively think about where you are in terms of your improvements in operational efficiency, do you feel like you're halfway down to a few tweaks operationally? Still a lot of upgrades to be done equipment-wise or process-wise? I'm interested in how you think about what's left to do in FY '26.

Let me take that question, Kris. So I think you talked about qualitatively internally, so maybe we separate the question and parse it out into which sector and which segment you're asking about. I think we're -- I'm assuming we're talking about Stadco and the turnaround at Stadco, not Ranor, correct?

Well, yes. I mean, Stadco has more room for improvement just looking at the numbers, but I know that you're striving to improve across all your metrics.

Okay. So I think we already mentioned that we're -- we have some massive trust and confidence in us at the Ranor segment from our U.S. Navy-based customers. And we've secured $21 million-plus in completely funded grant money, which is going towards new equipment and new equipment-related production efficiency. So that is well on its way. Is there more to go? Obviously, because we are in an always changing environment, there is more to go. There's a human/machine interface that happens here. Every single one of our parts, just like every single one of our submarines and aircraft are hand-built by humans and not by machines. So the machines are enablers. They help us make the parts, but there's humans that control the machines and there's thinking that goes behind that. So I think that kind of answers the qualitative type of question surrounding the Ranor segment. And then we go towards the Stadco segment, how is the turnaround going? Well, I think that we have just seen 1 quarter of goodness and positive profit at Stadco, and we want to have more of the same. How much is there to go, I think, was the question. I don't really know how to categorize that because we are taking things one step at a time, and a generalization is probably not going to do justice to the specifics. There's more work to do, yes.

I guess a follow-on to that would be...

Sorry, Kris, I just want to make one more point.

Yes, go ahead.

I'll give you the mic back in just a second. So finishing that idea on Stadco qualitatively, what we want to see is not just 1 quarter. We want to see 2 quarters, 3 quarters and a string of a fiscal year of profitability so that we can look at things from an annualized basis and have 1 year over another year and both be profitable, 3 of them be profitable. That's when we start feeling like we've gone past the halfway mark, and we're doing something worthwhile supporting the defense industry. The mic is back to you. Thank you.

Okay, yes. And just a little bit less qualitatively, I guess, is structurally, in the long term, could you -- could we think about Stadco over time as having characteristics in terms of its efficiency and margins on par or in the vicinity of Ranor, given the fullness of a couple of years?

That would entirely depend on the landscape. It's 2 different landscapes and it's 2 different sets of customers. I don't think it's fair to try to compare them side by side and think they're going to be alike. I think -- can it get better and look like Ranor's better numbers? That's what we want, yes. I hope my answer makes sense because it's just not fair to compare 2 companies that are doing 2 completely different things in the same defense sector, you know?

Yes, I appreciate that. I mean, I'm an investor so I tend to be less granular and I think about it as like these are industrial, very precision, very specific industrial businesses catering to defense that could have similar kind of operating margins, given 2 or 3 years of investing in operational improvements.

Right, except for the fact that they're small. So when somebody catches a cold, it actually affects us, right?

I hear you. I hear you.

Yes, it's pretty sensitive. I just want to be careful when I'm explaining something and not go into too many generalities that really don't tell you the real specifics of what drive -- the specifics really drive. It's the execution and blocking and tackling that's situationally different, I suppose. That's one way to say it.

Okay. Two other questions. One, and I'll just ask them both, one is I think a little simpler, which is given -- looking at your current backlog and you described it as being delivered over the next 3 fiscal years, should we think about that backlog delivery being distributed linearly -- like in a linear basis, year 1 to year 2, 3, more front-end loaded? And then my second question is in the submarine programs that you're in, is it -- would we -- should we think about the fact that you might have opportunity to grow the amount of content per unit over time, given your strong customer relationships?

Okay, so that's 2 questions. Let me answer the first one first and parse it that way, okay?

Yes.

So linear delivery is probably not going to happen. The business by itself is very lumpy. So even if we make the same part number, it might not come up the same way. Some of it is actually weather-dependent. Some of it is customer-dependent. Some of these -- all of these products are made by humans. So the -- it won't behave in a linear fashion. If it does, it's pure coincidence. Hopefully, that gives you the flavor of what it's like. The business is lumpy and goes up and down. On the submarine programs, is there ability to grow? The quick answer is yes.

And you -- I mean, you -- yes, a little more color on that would be interesting just because there's been a lot in the press about how our administration and the military would like to improve our productivity specifically with respect to submarines in addition broadly, but that's an area where you could really contribute.

That's an area that we have been contributing. And if we go back to the very beginnings of when I took over the helm in June of 2014, there was only one subsidiary, Ranor, and it was arguably less than 5% Navy submarine business. And currently, we are predominantly a navy submarine business, which means it's well over 90%. So that's been an incredibly grateful trip up the ladder to really dominate in our little tiny slice of submarine manufacturing components. Is there more work to do? I think it's yes.

Yes, that's really helpful perspective. I'll yield the floor.

Your next question is from Ross Taylor with ARS.

Alex, first, congratulations on returning to profitability, and also with our new CFO, I'm excited that we might actually start to get reports on time. I think that would help the credibility of management. I got a number of kind of in-the-weeds things and then I want to talk about some of the higher level stuff. First, the comment was made that production costs at Stadco were higher. Can you talk about whether that was because the nature of what you were doing is inherently carrying higher costs? Or was that tied to anything that was going on operationally that was less than as efficient as you would like?

I think the -- when we dig into the details and suss it out, it's a combination. Some inherent costs have increased, especially post-COVID. The wages have increased as well as certain things that we buy to make the parts. The costs on those have steadily increased not only just year-over-year but sometimes quarter-over-quarter. There are some things that just drive the costs up on the stuff that we need to make parts and wages have continued to increase. Those 2 probably are things that contribute to kind of like your base cost goes up kind of thing. But the business inherently is just up and down. So there are certain points in time when costs end up running higher. There are certain points in time where you have to -- we have to do things when people take vacation and then you've got somebody who doesn't really know it that well who's the backup guy, it takes more time. There are certain things in operating that cause it to probably, for that point in time, go up. It's a combination. I hope that answers your question.

Yes, it does. And then looking at that, you talked about the fact that you had gotten some rework on some of the contracts where you're getting perhaps somewhat more favorable terms or therefore, a better chance of profitability. Was that tied into longer-term contracts, which had been perhaps first even before COVID and therefore, cost estimates were completely unrealistic to the current environment?

Yes, thank you for the question. So that just ties back to the legacy pricing problems that we faced when we took over the company and made the acquisition in the August, September time frame in 2021. The pricing problems existed before we acquired them. And going back to how we were attacking this thing, we said that to ourselves and also publicly on one of our calls together, we said that it's probably going to be in tranches to try to solve this legacy pricing problem set and it won't be solved in one fell swoop. So we're very fortunate to have had a number of different initiatives all align into the same quarter, yielding a good profitability in the positive range. I won't call it good, I retract that, positive in the black for 1 quarter. So glad to demonstrate that once. But it's one tranche, Ross. That was my point. So indicating that -- sorry, let me just finish 1 thing. So there's more tranches to go.

Got you. I was going to say, are you -- are tranches being done by program or are they being done by component? Like you're looking at the CH-53K and saying, "Okay, let's look at this pricing and here's what we're doing for that program, and here is a whole section of item numbers and we're going to deal with all those item numbers?" Or is it, here's a bunch of item numbers and they relate to perhaps CH-53K or F-15EX, and then we're going to come and we've got several other products that or several other programs that we're involved with?

It's pretty -- it's more granular than that and dive into more detail. So there's like subsets of the tranches, too. So I tried to bring it up 1 level so it's more explainable on the call, but it's in the detail. So like overall, one tranche has been executed so that's really good.

Would you say that, that tranche covers 1/10, 1/4, 1/3, 1/2 of what you need to address?

It's time-bound also, the tranche. So am I making any sense? So the time-bound tranche executed itself well and landed in the same quarter.

Okay. So if you look at -- to work through all the tranches you see the need to work through, how far through -- I hate the baseball analogy of what inning, but are we 1/4 of the way through your exposure that you need to address or are we half or are we -- how do you look at that?

I think it's more than 10% and less than half. I hope to talk about this more at the next call and the next call and the next call so that we can -- here, I go back to my mantra here. We have 1 point, 2 points will make a line and 3 would indicate a trend so that's what I'm fighting myself to get to. Let's go.

Okay. Now the F-15EX is a program that bounced around in production numbers but it really looks like they're ramping -- they expect to ramp production meaningfully significantly...

Ross, you're coming in a little bit muffled.

Yes, sorry. The F-15EX program had a significant increase in the expected demand rate. I think we're up to 126 or 129 or whatever. It looks like they added 2 squadrons to the demand list. Do you have the ability to fill that demand as it comes to you?

Yes, absolutely. I will go one more step. Absolutely.

Okay, okay. So that's great because that could be a significant area of ramp. Additionally, what -- when you look at production capacity or utilization time, what kind of utilization are you getting out of your 2 facilities? Are you operating 50% of -- we'll think -- forget about dollars but think about time. Are you operating at 50% of 1 shift, 100% of 1 and none of a second? How do we look at where you can go and how you can ramp this business on a volume basis over the next year or 2 years?

Next year, next 2 years? I wish I knew. I know it needs to go up and I'm a little more impatient than wanting to wait 1 or 2 years, but...

Believe me, so am I, Alex.

We've been doing this for a while now, and like I said last time, I'm setting my own pants on fire. I'm getting -- yes. But to answer your question more directly, I think it's double digits for sure. It just -- it's so dependent on -- sometimes there's customer stuff that needs to come to us first and that creates its own lumpiness.

Okay. I was -- you have a new leadership team in or at least it strikes me as you have -- while most of the Board was retained, the energy and the focus of this Board seems to be different than in the past. I have trouble believing that this Board will be comfortable underutilizing the assets. And you just had talked about how you've gone from 5% -- once we're around 5% or something non-Navy to now you're 90% or so military DoD business. What opportunities -- I knew you guys were involved in like nuclear transportation casks. What opportunities outside of DoD are there that you should be grabbing, that this new leadership team is going to want you guys to grab hold of and to run through your facilities while you're operating at less than capacity in order to drive more free cash flow, effectively drive down the breakevens, all those -- all the good things that come as you move up the utilization of facilities?

I think I may have just not characterized the utilization of capacity correctly because from your question, sometimes I'm at over 100% capacity utilization in both facilities. It just depends.

And therefore, do you have the ability to run additional -- you once had a very large commercial business. Some aspects of that business have gone away, but other aspects and new aspects have probably opened. Do you have the ability to run additional shifts and to basically bring in other business? It strikes me as if we can bring in well-priced business, running additional shifts or running more of these shifts or running at a higher rate over the course of a month, while you might run at 100% on any given day, I'm sure there are days you run under 100% or perhaps even well under 100%. Is there things we can do? Is this that you're going to get out there, you're going to go from being a fisherman to a hunter and actually rope in new opportunities?

I think the best opportunities are to stay within the same types of specifications, so we don't bifurcate our people's brains and try to let them do things that have to obey 1 specification or another. If we're specification-driven, which has been the key to success, and the times that Ranor has been really very, very profitable in the past has been when Ranor had 1 customer and did 1 product. Same with Stadco. The businesses are pretty small. So when we try to do 2 different specification-driven types of businesses and drive it into the same factory, there's a lot of risk. Probably the way to mitigate that risk is to grow within the existing customer base because we already hold great status with our existing customers up to and including single and sole-sourced contracts. So the growth trajectory of least risk and most -- best results and best profitability is probably to grow the Navy business and grow the stuff that flies business and get more.

Okay. Well, I'm agnostic to where you get your growth. I will only say I think that you need -- we all would welcome significantly more growth. And my last question, the philosophical one is tell us about how it's different now than it was before. I have a feeling that you have a different relationship with members of the Board here. What are they asking you to do and what are you getting done? An example, are we going to get the ability to kind of finally integrate Stadco with the overall company so we can get reporting set up? What are all these pieces of puzzle going to end up being like? And what's it like working with these guys?

Well, I think I'm agnostic as well on what the Board composition is because our goal as -- we're stewards of the company and we need to make the company better and grow it. That mantra and that drive needs to keep going. We are in a good place with Ranor because of how we're trusted by the U.S. Navy and the U.S. Navy-related customers, ending up with $21-plus million in grant money that's been funded already. I think through the years, we're going to demonstrate how that money is going to be put to good use and put to good growth and spur the growth with new equipment. We'd like to see how we can do something similar at our newish subsidiary, Stadco. So we need to grow.

I would agree. I'll pass it to others but I definitely -- you're there. I will say one thing is very clear, Alex, is under the new leadership, you are -- your relationship with your shareholder base, I believe that on these calls, has changed. I no longer feel I need to hang you out of the helicopter on your feet.

Thank you, Ross.

Your next question is coming from Richard Greulich from REG Capital.

Just trying to understand how the -- reaching to an agreement regarding some of the legacy pricing, how does that impact the income statement and does it in the current quarter? For example, would there be a change in the provision for contract losses because of any change of agreement that you've been able to arrive at?

Yes, Richard, this is Phil so I'll take a crack at that, right? So you nailed it, right? So there are 2 things that we are -- that impact this. One, from an accounting perspective, we're on percentage of completion. As the price increases come through for the purchase orders, it will affect our percentage of completion based on that and the revenue that we record, but it also impacts, more importantly, is the loss provisions. So if we move from a loss position to a profitable position, we reverse those reserves, those loss provisions. And certainly, as Alex had indicated, given some of the changes that we recently experienced in Q4, we're able to reverse some of those loss provisions on Stadco's books.

Can you quantify what that change in the loss provision was in the quarter?

Yes. It was between $100,000 and $250,000 thereabouts. It wasn't huge, but it was still contributing to the bottom line.

And then going forward, that will have an impact then on a more continual basis, albeit not that kind of a number, but...

Let me take a crack at that one. So as I mentioned, these tranches that we take care of, some of them are time-bound so we want more to come? Yes. Are we aiming to do more? Yes. Is that answering your question?

It does, but this is more of a qualitative, I guess, question. Having reached this new agreement regarding some of the legacy pricing, does that give you further encouragement going forward of being able to do the same on other tranches?

Yes, it does. The way we try to do this is not do it in one fell swoop because not only was that going to be an impossible dream, it's not very practical to do that with the giant customer base that -- we're dealing with giants here. If we break it down into smaller pieces, it's much easier to digest, explain, get it explained through their management and dealing it with tranches and many tranches and have more of pieces so that we can have success. And that was our tactical execution of that. And we've been added at Stadco, I think, from the inception of the acquisition, August, September of 2021. And we finally have seen a result that appears in our quarterly numbers.

Thank you. This does conclude our question-and-answer session for today. I would now like to turn the floor back to Alex Shen for closing remarks.

Thank you, all. Please have a great day.

This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you once again for your participation.