TechPrecision Corp (TPCS) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the TechPrecision Corporation fourth quarter 2011 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)

I'll turn the conference over to Mr. Brett Maas with Hayden IR. Please go ahead, sir.

Thank you and welcome to everyone joining. On the call with us today are James Molinaro, TechPrecision's Chief Executive Officer, and Rich Fitzgerald, Chief Financial Officer. Before we begin may I remind our listeners that in this call, Management's prepared remarks 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 to you a more detailed discussion of the risks and uncertainties in the Company's filings with the Securities and Exchange Commission. In addition, any projections as to the Company's future performance represent Management's estimates as of today, June 22, 2011. TechPrecision Corporation assumes no obligation to update these projections in the future as market conditions change. I'd like to now turn the call over to Mr. Jim Molinaro, TechPrecision's CEO, to provide opening remarks. Jim, congratulations on a year of great progress.

Thank you. Thank you, Brett. Good afternoon, everyone, and thank you for joining us today. As Brett indicated, this was the year of tremendous progress for TechPrecision, and one that positions us for increased performance in the years to come. During the past fiscal year, we successfully grew both the revenue and profitability. We are especially pleased with our backlog, which stood at $32.5 million at the end of the year and positions the Company for significant growth in fiscal year 2012.

Beyond our improving financial performance, fiscal 2011 was a year of diversification as we positioned TechPrecision for substantial growth and profitability. Historically, we have been heavily reliant on a single large customer and while in the last year this has benefited us, our goal is to benefit from positive dynamics in a wider range of industries and verticals. Accordingly, we have added 4 new Tier 1 customers and this will broaden our participation in the Cleantech market and solar vertical in particular.

We also launched our second subsidiary, Wuxi Critical Mechanical Components, or WCMC, in China. WCMC positions us closer to our customers' end markets and also provides us with a second platform for growth. This subsidiary was formed in early third quarter and subsequently we have completed all the necessary permitting and China business licenses. During the fourth quarter, we invested significantly to prepare our WCMC subsidiary for expected near-term growth, and we enter fiscal 2012 well positioned for another strong year. WCMC is not yet contributing significantly to our revenues, but we expect to see rapid growth throughout the next year as we begin volume shipments during Q2 fiscal 2012.

Asia is the region with the fastest growth in several of our key verticals notably nuclear, solar energy and Sapphire. As we've stated before, more than 90% of the polysilicon solar panels and many new nuclear reactors are scheduled to be built in China. Multiple customers have indicated interest in expanding business with TechPrecision and our WCMC division in Asia. We are confident that WCMC will diversify our business and allow our Ranor division to focus on new strategic business opportunities.

The order flow from our large customer in the solar energy space remains particularly strong and they continue to express public confidence about the strength of their PV pipeline, which should translate into sustained order flow for WCMC. This customer has publicly indicated their intent to consolidate manufacturing of their solar products to China and our WCMC operation makes this possible, thus positioning TechPrecision to increase its market share with this customer and others in the Cleantech space.

During the year, we announced that we have received orders from 2 other customers within the solar sector for both mono-crystalline and CIGS production equipment. With the addition of these Tier 1 customers who participate in the mono-crystalline CIGS segments of the solar sector, we are gaining technology and customer diversification. Additionally, we also see HEM Sapphire as a key growth area for us, looking into 2012 and beyond. HEM Sapphire crystal production requires upstream processing equipment that is similar to the equipment we produce for the solar industry. Accordingly, our core competencies and experience base within the solar sector is directly relevant to the emerging HEM Sapphire vertical.

Beyond solar, we're experiencing heavy business development activity for nuclear replacement parts and new nuclear builds. In addition, we continue to make progress in the medical device, commercial industrial and defense verticals, and anticipate some positive news in the very near future. With that I would like to turn the call over to Rich Fitzgerald, our CFO, for a review of our financial results for the fourth quarter and full year. Rich?

Thank you, Jim. I'll review the full-year results and then cover the fourth quarter following that. For the 12 months ended March 31, 2011, revenue increased 14% to $32.3 million from $28.3 million in the 12 months of fiscal year 2010. Sales to our largest customer, GT Solar, contributed 77% of the sales growth in 2011 over 2010, while the remainder of that sales increase was due to other customers in the defense, power generation and medical verticals. Gross margin for the year was 30.7%, or $9.9 million in gross profit for 2011 compared with gross margin of 21.5% or $6.1 million gross profit in 2010.

Total operating expenses for fiscal 2011 were $5.2 million as compared to $3.3 million for 2010, reflecting a $1.9 million, or 56.7% increase over the prior year. The increase was driven by one-time or nonrecurring professional fees associated with the retained searches for our CEO and Board of Directors completed during the current year along with legal fees incurred to complete the December 2010 property purchase and bond financing, as well as costs associated with launching our China operations. In total operating expenses for the year ended March 31, 2011 included approximately $877,000 in nonrecurring transactional costs as well as non-cash charges for stock-based compensation, which increased $167,000 over the prior year.

Net income for the year was $2.7 million, or $0.19 per share basic and $0.12 per share fully diluted based on 22.9 million weighted average shares outstanding for the year as compared to $2 million and $0.15 per share basic and $0.10 per share diluted in the prior year on a weighted average share base of 20.9 million shares outstanding in the prior year. The Company's effective tax rate also impacts the comparability of our fiscal 2011 and 2010 results. In 2010, nonrecurring cash benefits had the effect of lowering our effective tax rate for fiscal 2010 to 12.7%, while the effective tax rate for fiscal year 2011 was 27.2%. We completed the year with a backlog, as Jim mentioned earlier, of $32.5 million, which is up from the $21.5 million we've reported at the end of March 30 -- at the end of 2010 on March 31, 2010.

Turning to the fourth quarter, for the 3-month period ended March 31, 2010, revenue increased 73.5%, or $3.4 million to $8.1 million from a base of $4.7 million in the fourth -- clocked in the fourth quarter of fiscal 2010. Gross margin was 26.7%, or $2.2 million gross profit in the fourth quarter of 2011, compared with a gross margin of 40.3%, or $1.9 million gross profit in the fourth quarter of fiscal year 2010. Our third quarter of this current fiscal year, we reported $29.5 million in gross profit, or $2.9 million for the quarter ended December 31, 2010. The change in gross margin is due to higher material revenues in 2011, which carry a lower margin. During the fourth quarter, costs to expedite materials and establish initial manufacturing processes at our WCMC subsidiary in China had the impact of lowering fourth-quarter gross margin by approximately 150 basis points, when compared with our third-quarter gross profit for the quarter ended December 31, 2010. As we ramped the higher production volumes in China, WCMC will contribute favorably to margins in future periods.

Total operating expenses during the fourth quarter were $1.8 million as compared with $0.9 million in the fourth quarter of the prior year, reflecting increases in payroll and related costs, incentive and stock-based compensation, higher travel costs associated with business development efforts, and our initiative in ramping WCMC in China, as well as higher professional fees and additional consulting costs associated with establishing operations in China. Net income for the quarter ended December 31 -- I'm sorry, net income for the quarter ended March 31, 2011 was $0.2 million, or $0.01 basic and $0.01 fully diluted based on 22.9 million weighted average shares outstanding for the quarter, as compared to net income of $0.7 million, or $0.05 per share basic and $0.03 per share diluted for the fourth quarter of the prior year on 21.8 million weighted average shares last year. Again, when comparing the current year results with fiscal 2011, it is important to note that in 2011 -- I'm sorry in, 2010, nonrecurring tax benefits lowered the effective tax rate in Q4 of fiscal year 2010 to 24.4%, while the effective tax rate in the current year's fourth quarter is 38.7%.

At March 31, 2011, we had $7.5 million in cash and equivalents compared with $8.8 million in cash on March 31, 2010. The primary drivers of the net $1.3 million reduction in cash for the year ended March 31, 2011 were a $1.3 million cash distribution paid to WM Realty as part of a December 2010 real estate transaction, and $0.6 million in increased investment related to the facility expansion ongoing at our Westminster, Massachusetts plant.

We had net working capital of $13.5 million at March 31, 2011 compared with net working capital of $13.3 million at the end of last year, an increase of $0.2 million. Cash provided by operations was $1.3 million for fiscal 2011, as compared with cash used by operations in the prior year of $1.4 million. The increase in operating cash flow was due to the net effect of an increase in net profits, increase in non-cash share-based compensation, increases in deferred revenues, accounts payable and accrued expenses, offset by an increase in accounts payable during fiscal year 2011.

Net cash used in investing activities was $1.5 million during the year ended March 31, 2011 compared with $0.9 million in the prior year, representing an increase in cash used for investing activities of about $0.6 million, and again, that's related to the 19,000 square foot expansion of our Westminster, Massachusetts facility, which we expect to have online at the back end of -- in the middle of Q2 this year. Net cash used in financing activities was $1.1 million in fiscal 2011 compared with net cash provided by operating activities of $0.6 million in the prior year. Net cash used in financing activities for the year ended March 31 was impacted by the $1.3 million distribution to WM Realty in December 2010, which was incurred as part of the acquisition of the Westminster, Massachusetts facility.

Our stockholder's equity increased 14.7%, or $1.7 million, to $13.8 million compared with $12.1 million at March 31, 2010. I'd remind you that in December, we completed the acquisition of Ranor's manufacturing facility in Westminster, Massachusetts and the bond financing with the Massachusetts development authority. The acquisition of Ranor's Westminster, Massachusetts manufacturing facility in conjunction with the December 2010 bond financing, lowered the effective rate on our real estate-related debt by 270 basis points and also reduced the interest rate on our equipment-related debt for the new gantry mill by approximately 110 basis points.

In addition, in February 2011, our term note with Sovereign Bank transitioned from a fixed interest rate of 9% annually to a variable rate of prime plus 1.5%, further reducing our interest costs going forward. With that brief financial synopsis, I'd now like to turn it back over to Jim for some additional remarks. Jim?

Thank you, Rich. Again, I believe the initiatives and results during fiscal 2011 have positioned us for substantial growth and profitability. We are positioned to grow on 2 continents and participate in several rapidly growing industries, helping to shelter the Company from changing market conditions. We now have 4 new Tier 1 customers helping further insulate us from fluctuations related to a specific customer, and we now have 2 subsidiaries providing multiple platforms for growth. In addition, our pipeline continues to strengthen and we're building off our quality performance and reputation with key customers.

The progress is reflected in our sales growth and improved net income for fiscal 2011 compared to fiscal 2010. We are benefiting from a more methodical approach to business development. We have implement a more strategic and focused approach to generating new and expanded businesses, and this has helped us expand our backlog. Let me spend a minute discussing our strategic visions and plans for some of our key verticals.

On the medical device front, our customers, Still River Systems, continues to advance the development of its Monarch250 proton beam radiotherapy unit, toward the goal of obtaining 510 clearance from the FDA later this year. FDA clearance should translate into increased production for us, as other Still River Systems customers press forward with production and delivery of the Monarch250 units. To support the anticipated growth in our medical device business, we will complete our Massachusetts factory expansion during the second quarter of this year, and the installation of the new gantry mill providing us with additional manufacturing capacity to meet future production demands, which we still anticipate from the Still River System. Last year, we did -- the work we did for Still River Systems accounted for 5.6% of our annual revenue. Downstream of a 510(k) clearance from the FDA we would expect this customer to constitute a greater portion of our overall revenue.

Within the solar vertical, we completed the year by launching a new subsidiary in China to support GT's objectives of migrating its supply chain nearer to its end market and added 2 new solar customers who leverage mono-crystalline and CIGS based technologies. The addition of these 2 new Tier 1 solar customers provide us with further customer and technology diversification within the solar sector. Additionally, our WCMC subsidiary in China positions us to offer solar and Cleantech customers with global high quality manufacturing services.

The defense sector continues to be one of the important focuses for our US subsidiary, Ranor, and during the year March 31, 2001, we successfully qualified our manufacturing facility in Massachusetts to do a broader spectrum of work for key defense customers. Last year defense-related business accounted for 23% of our annual revenues. Going forward, we are looking to further leverage and expand relationships with key customers in the defense sector.

On the commercial industrial front, we are presently building a beta unit for the new industrial gas customer we announced last August and look forward to supporting the market introduction of their exciting innovation within the industrial gas industry. This product looks to redefine the industrial gas marketplace just as Still River Systems technology is a game-changer within the field of proton beam radiotherapy. As this product line progresses to the market, we envision the need to manage production and ship these units from a facility with deep water port access as the targets scale for these production units is too large for road or rail transport. Accordingly, we've engaged Jones Lang LaSalle to investigate possible sites as well as local or state government incentives to support such a new facility.

In closing, we are pleased with many of the verticals we served and are poised for continued growth as we are increasingly aligned with our Tier 1 customer base. With that, I'll turn the call over to the Operator for the Q&A session. Operator?

Thank you, sir. We'll now begin the question-and-answer session. (Operator Instructions) Theodore O'Neill with Wunderlich Securities. Please go ahead.

Thanks very much. Jim, I'm wondering if -- tear up a couple of questions here. Could you talk about why revenue went down sequentially in -- from third quarter to fourth quarter? Could you talk about what level of expense we should look forward to going into fiscal 2012? Does it stay at these levels, does it continue to go higher? And what was the dollar amount, if you can give us, that was sort of nonrecurring expenses in the fourth quarter?

Okay, so first why don't you take it backwards, because I think you posted the number on the fourth quarter expense, so why don't you take it backwards from there.

Yes, Theo, I think in the press release and in the sort of prose of this call, we talked about nonrecurring costs for the year of about $877,000, and that would translate -- a lot of that -- more than half of that came through in the fourth quarter, about $455,000 of nonrecurring. So when we look at those nonrecurring charges, it's our expectation that now that we've got the real estate level set, we've got our business development function moving and we've got WCMC established and open for business with our largest customer, we expect the costs to come back down and those nonrecurring elements will fall away. And going forward in fiscal year 2011 and you'll see margins, gross and net, begin to sort of go back to where our targeted levels have been and where we speak going forward. Is that helpful?

And so that was all in the costs of goods sold, there was nothing in there that was on the expense line?

No, no, on the cost of goods sold, and I think you'll see this in the press release and certainly we'll cover it in the 10-K when we file that, that during the fourth quarter we shipped our first units and they were test units from WCMC to qualify the facility, and those units had a lot of expediting costs on them, so that's affecting the gross margin in the fourth quarter by about 150 basis points. We would expect now that we've qualified the facility and we've determined where we're sourcing materials in the supply chain in China and elsewhere for WCMC, that we would get margins back up where they were before we move the supply chain to China. But again, the mission was to qualify that facility in the fourth quarter and we had to do that by producing those test units.

Understood. But so there's -- there aren't any nonrecurring charges in the salaries, professional fees or SG&A?

Well, no.

Okay.

He's asking for nonrecurring. In Q4, you can help me out with the number exact, but in Q4 the number you're current was like $450,000.

Yes, we've got $455,000 in the operating costs, Theo, that won't be coming forward with us.

I think that was his specific -- Theo, you made a comment about revenue primarily from the Ranor division down from Q3 to Q4. That's pretty much just the mix of a higher material content in Q3, and so there was really an excess material content in Q3 that didn't replicate in Q4, and that's typically what we'll see. There's an ongoing from the Massachusetts operation, the processing machine and the fabrication part and sometimes material part is a thing that varies. Those fluctuations will be tempered as we go into 2012 and start to ramp China for both the multi-crystalline line and mono-crystalline line.

But again, when we speak quarter over quarter, we always caution people that this is still a lumpy revenue business within the US. The WCMC will be pretty much of a production line in what it's pushing through. That'll be a little bit more predictable quarter over quarter. But if we've got projects that are delayed for testing or delayed by the customer, that impacts our quarter-over-quarter top line.

All right, and what -- can you -- you've got, you've got 50% higher backlog than you did a year ago and can you talk about what that means for revenue in 2012? I know you didn't put anything here in the press release numerically but if you could give us either qualitative or some numbers in the way to think about what the next quarter is going to look like as well?

Yes, well so this was a fun first year for me and the year before there was a 2 in front of our total revenue number, this year there's a 3 and our job now is to make sure there's at least a 4 in the number next year and I feel pretty comfortable there will be. And will there be a 5? That would take one of the customers accelerating one of their programs, but I'm pretty confident there will be a 4 in front of the number for fiscal 2012. So it will be a very nice growth year on year for us.

Okay, thank you.

Yes.

Thank you. (Inaudible) with Sidoti & Company. Please go ahead.

Hello, guys, congrats on the new Tier-1. Just curious, were any of those guys 10% customers in fourth quarter?

No, no, they are not.

All right. I was just curious, maybe you could give us an update on the progress you guys have been able to make in the LED market. I know it's probably a little early, just kind of curious.

It is a little bit early. It's one of our prime business development activities to work with players in the HEM Sapphire business. The beauty for the type of products we make for both multi-crystalline and mono-crystalline products is pretty much related to that of Sapphire. They're very much the same product. So I can tell you with (inaudible) as one of our bigger pushes on the (inaudible) side.

All right. And lastly, I was just curious, maybe you could elaborate a little bit on the new gantry's impact on Ranor?

Well, that's -- first of all, it's one of the largest in North America and we'll be publishing a flyer with a photograph of what this thing looks like. It can cut 1 piece of metal 40 feet long by 16 feet by 16 feet, it's a very impressive machine. So for what that means for Ranor, it's not only the fact that it can do the size, but it can do a tighter tolerance at a faster rate. For some of our nuclear components, we make the critical nuclear core plates for one of the Tier-1 accounts -- for one of the Tier-1 customers. It can produce those core plates between 30% to 35% faster. So you get accuracy, you get size and you get output out of it. So we're looking to load that machine pretty heavy when it gets turned on.

Sounds like a good one. So just in terms of the revenue impact, it will basically just allow you to turn over orders faster. Any margin impact potentially?

It will allow us to turn orders faster. So I mean, year on year, as I answered Theo's question, that my goal is to make sure there's a 4 in front of our number, next year, this machine will contribute towards that.

All right. Thanks, guys.

Thank you.

Thank you. [Steve Anderson] with [Benecorp]. Please go ahead.

Hello, guys. How are you?

Good, Steve, how are you?

Good. So I guess the first question, you've said it's a very lumpy business and occasionally things just escape one quarter and possibly move into the next. Was there any of that this year, any slippage on the top line?

Not so much a slippage. I think what Rich is referring to is you get, within the Massachusetts division, they were doing billings on the materials front. And sometimes with a large order upfront, there's a larger materials purchase section, so you'll see that. On our business model going forward, in particular with CMC, we don't do it -- we're not structured that way, so it will be based on unit sales and it will level it our. You really won't see the lumpiness after China ramps and we blend the numbers together.

Okay. No, I was understanding more from a testing side, if you see -- if something just doesn't get tested on time, it slips into the next quarter, but there was nothing like that?

It may, but not in the millions of dollars realm.

Okay. The other thing--?

Thank goodness.

If I look at your salaries and related expenses, you're running $2.4 million this year up from $1.7 million last year, a big jump in the quarter. And I realize there was probably a seasonal aspect to that because there was last year. Where do you expect to run next year?

From a staffing -- let me just start--?

Salaries, related expenses, that level. You had a big jump this year.

I think we're close to where we need to peak and be to support 2012. There's going to be a couple in incremental adds primarily in China, maybe in [rich] and finance, but that's about it. We're -- we've built out to position where we need to be to get that--?

If I look at your op costs running about $5.2 million, you would expect that to be similar next year?

Make it $5.5 million and I'll call it even, how about that?

Give or take 5% or 10%, somewhere in there?

That's fair enough. Yes. Now what will come down is that $877,000 of nonrecurring will come out of there as well.

Yes, so that's about--.

We think we'll be, we'll be flat, Steve, to down, very likely down. Net/net from a--.

Down on op costs next year, okay.

Yes.

And your COGS, where do you think they'll take your gross margins to get back up to that 30% level that you've been running at previously, high 30s?

I think once you start to see China kicking in, as I mentioned in my dialogue, we'll start to kick in heavier volumes in Q2 fiscal 2012. I think that's when we can expect to see it.

So is it fair to say this is kind of the low point on the gross margin side?

Yes.

Yes, it is.

And then we should see it start to move back towards 35% over the next couple of quarters?

Yes, I mean we had two things impacting in the fourth quarter. One is that 150-basis point impact of the test units and then repositioning the capacity in the US as well.

Okay, and now as you've expanded to China as well, what happens with your tax rate going forward?

Yes, and that's something we're going to work pretty hard on the coming quarter and look at transfer pricing as we ramp the China operation. If you were to look at GT Solar as a proxy for us, they have gone to China and through Hong Kong 12, 18 months ahead of us and it's managed to clip there as their tax, effective tax rate's come down about 300, 400 basis points with that sort of shift in business. I would expect right now we're clocking in at 37%, 38% with the additional depreciation we've got coming online from the expansion in the US and whatever kick we can get out of the lower effective rates in China, we should see some improvement. And we'll probably be in a better position to quantitate that once we get our transfer pricing and ramp established in China.

Okay.

So directionally, directionally, it'll go down. I can't quantitatively see that.

Well, directionally it will go down by 300 to 400 BPs is what you're hoping.

I'd like -- yes, I 'd like to replicate what GT did. We're a little bit smaller scale than they are, but we'll see what we can get done.

And then talking about the LED opportunity, so you are working directly with GT Solar on that, correct?

Without mentioning names, we are engaged in heavy business development activity to show that we can support that market.

Okay. Okay. And when would you expect to have product out that you would be able to talk about and talk about your client on that one then?

I hope that we would be able to get -- convince them in the next 60 days.

Okay. That's great. Thanks a lot, guys.

Thank you, Steve.

Thank you. Greg Garner with Singular Research. Please go ahead.

Okay. I'm sorry. I had a little mute button problem here. Hello, guys. First of all, couple connective point question here just on the solar. It was mentioned about the Still Rivers moving to possible 510-K approval next year. You mean next calendar year, is that right?

Still River, I believe, probably said they're targeting 510-K--.

This calendar year.

This calendar year, by end of this calendar year.

By the end of this calendar year, okay. And the new gantry in Ranor is really designed primarily to meet that demand? Is that -- I just want--?

Well, it does -- that gantry can certainly meet that demand. It also provides us with better capabilities in the nuclear side and defense. It's a very powerful machine. Like I said, with the higher output and a greater accuracy and of course greater size. But it's by no means product line specific, it cuts cross all our product lines.

Okay, so to meet all the Still River's potential production, that gantry would be able to do it and also additional production, too, is that the right way to look at it?

Oh, yes. It would not be -- we don't envision it being solely dedicated to Still River, even when they get the production volumes.

Okay, okay. And wasn't there some testing going to be done on the Still Rivers about this timeframe now? And what is the status on that?

Yes, I'm not sure what they have said publicly, so I have to be careful. But I believe they were receiving their latest and greatest accelerator, and that accelerator is to be sent to the field, Barnes-Jewish in St. Louis to be installed and get ready for initial treatment.

Okay. So you're not seeing anything that would delay what was -- has been mentioned about the schedule about the 510-K approval end of the year, and--?

I -- as far as I know, that's still their target.

Okay. Okay. And I was pulled away, but I didn't hear the answer about some of the HEM Sapphire discussion, so I apologize if I'm repeating this. But isn't this -- I thought this was going to ramp up a little bit more in the -- a little sooner. Is it -- you're looking now more like a second quarter ramp-up in China there? Is that right? And so--?

The initial products in China are to support multi-crystalline wafer followed by the mono-crystalline wafer, and then if we're successful at that then Sapphire would follow the mono. But we are currently making the initial -- we're currently ramping the multi-crystalline product line and at the same time, we're starting to introduce the ramp for the mono-crystalline. After those two are done, then Sapphire would come into play.

And this would all be taking place over the first half of fiscal 2012, is that right?

We -- first half, yes. Yes.

Okay. And not to beat a dead horse, but on the gross margin, it was mentioned 150 basis points was attributable to getting qualified in China, and as far as the change from the third quarter and it's the remainder that was the issue with materials then, is that the right way to--?

What we did was pay a lot of value-added tax back and duty to move materials in from the US to China so they could be manufactured in China. We sent kits in.

Okay.

And we moved a lot of the equipment, lot of the material we had in the US over there to make sure we could do test units very quickly, and it was not expediting those materials into the production there, was not by any means the most efficient, cost wise supply chain you could have used. We now have a supply chain that's sustainable and cost effective at our targeted margins.

And at a higher level, it was a very small investment for the revenue opportunity that it generates. And like you said, we -- heavily more towards Q2 fiscal 2012, but when you look at the overall investment to overnight setup and operation, keep your number one customer happy and get units qualified from a quality standpoint and manufacturing standpoint, I think it was money well spent.

Okay, and just a quick question on the commercial product. Is this beta product that you're producing, does that impact margins at all? Should we look at that as a potential negative impact on margins until it's completed?

No.

Okay.

The beta project's a good project.

Okay. Very good. Thank you.

Thank you.

Thanks, Greg.

Thank you. Michael Potter with Monarch Capital Group. Please go ahead.

Hi, guys. Congratulations on a very busy and productive year. If you can -- if we look at China a little bit, Jim, can you -- how many employees did we have or did we hire for specifically for China in Q4 and then how many do we currently have?

Yes, so to set up the original operations there were in Q4 an initial 4 local hired with 3 expat for China and then the expat was -- sorry, I'm moving back in the quarter. The expat numbers in Q4 were up to 7 that were brought on in Q4 to run the operations, run the quality, run the machining, run the fabrication. And then local China under the tech [approval] I think was an additional 8 and that was all in Q4 to prepare for what we're doing now.

Okay. So we ended the quarter with 8 local and 7 expat?

Correct.

Okay, and where are we now?

I think we're at 8 or 9 expats right now, running the operations.

It's important to appreciate, Michael, those expats are to ramp the multi-crystalline and the mono, which is further out. So we're going to see revenue from the multi-crystalline solar business, and right behind that, we'll ramp the mono the second customer.

Okay.

The expats proceed -- yes, they precede the ramp.

Exactly. I mean that's -- I think it's good if we -- it kind of gives us a better understanding of the ramp that's needed in order to support the revenue opportunity. And how many customers are we -- do we currently have signed for our Chinese subsidiary?

Two so far.

Two so far, okay. And I'm assuming we have more in the pipeline?

Yes. I would expect in the next 90 days to add -- to go from two to four.

Okay, great. And you mentioned the backlog at the end of Q4, where does the backlog currently stand?

Right about the same ball park, Michael.

Okay.

We'll see the build the back end of this quarter and the second quarter, as we get to ramp China and get more visibility on the--?

The current backlog is it about-- is standing at about the same level as it was at the end of Q4?

Yes, we're right around 1 to 1 book to bill.

Okay. All right.

That dynamic will stay there until we really see the effect of the ramp in Q2.

Okay. All right, guys, great. I'll get back into queue. Thanks.

Thanks, Michael.

Walter Schenker with MAZ Partners. Please go ahead.

Hello, maybe we're beating it to death, but I have some China questions, too. In the fourth fiscal quarter, since these were basically high cost units which were shipped to qualify, your sales from the China JV would have been hundreds of thousands of dollars or less?

Okay. I was with you up until the qualified part.

Okay your shipment up, forget the qualifier, your shipment in China to Chinese customers in the fourth quarter was under $0.5 million, under $300,000, just a general sense?

Yes, correct.

Correct, under $300,000?

Correct.

Okay, and this quarter, which is the June quarter, you are ramping but not in anything resembling your full production?

Correct.

So this quarter would be $0.5 million to $1 million? I'm pulling things out of the air, I'm not trying to pin you down. You can quality it any way you want.

Yes, it's somewhere around that $0.5 million mark sits about right.

Okay.

And then Q2 is where the gates open.

And the gates open get you to a couple of million dollars potentially?

Yes. It better. It better be a little more than that.

Yes, what we're really doing in the first quarter is working with the customer to optimize the supply chain in China so that it works for them, works for us on a sustained basis and that we qualify the various players in that supply chain. And then we've got the volume and the volume they are targeting and we're targeting in Q2.

Okay, so we should look to Q2 as a fairly good predictor of reflecting where you hope to be? Not with all the customers, not with -- I mean this -- a lot of things in the pipeline, but with what you formally have now qualified, we'll see that benefit in Q2?

Right. That's spot on. And so what you're looking at is raising the bar, raising the bar in Q2 and then the next bar raise will be as the mono gets into the final ramp. So that'll be the next step up. But Q2's a good run rate indicator.

And in Q2, China could be a mid-30% gross margin and then when mono kicks in, it should go up somewhat higher? Do you want me to ask it a different way or?

Well, no, you don't have to ask it a different way. I want to, I want to see the results of the first units being produced. There's three units being produced now, so I want to see that to say yay or nay, but obviously, it would be nice if our total blended Company rate was in that same ballpark you just mentioned.

Okay, but the goal in China, it initially is to be sort of at the corporate rate, if not higher?

Initially, it is -- the goal is to be at least at the corporate rate, yes.

And if you -- as you grow it and feed other products, such as mono, hopefully it will be higher?

That is, that is also the goal, yes.

And if we take advantage of the tax rates over there, even at a comparable gross margin to the corporate target, we'll get some kick in the net margin with the effective rate being 25% down there versus 35% corporate rate here federal, right?

Okay, I got it. Thanks a lot.

Thank you.

Thank you. [Robert Fultime], private investor. Please go ahead.

Hi, gentlemen. Wonderful report, very exciting thing. When do you consider making application for listing on the more traditional call it exchange?

Good question. I want -- I stated earlier, I want to see the China business unit continue the previous question was getting to that run rate stabilization. I see those run rates happening in Q2 on a go forward, potentially before the end of the year.

Application? Did you say--?

Application, we can do that earlier and--.

We know exactly what that looks like.

Yes.

What does that look like?

We meet all the criteria right now, except for NASDAQ, we don't meet the $4 handle. On an Amex basis, we meet all the criteria, but for a sustained $2 handle, right, listing requirement. But to your specific question on making application, we can make an application much earlier than pulling the trigger of saying going to NASDAQ. So that's a mechanism, but we've had sufficient meetings and discussions to know what's required to do that. That's the easy part of the process. But you would definitely make the application before your decision, of course.

So we want then, to pick up on Jim's theme earlier, we want the tailwind of having ramped China and demonstrated some growth.

Okay, thank you, fabulous.

Thank you. (Operator Instructions) [Robert Lipton] with [Danoff Corporation]. Please go ahead.

First of all, gentlemen, congratulations. It's a very exciting prospect for the future. Let me talk on a macro level with you on a couple of questions. First of all, what's the competitive environment? Are other companies in a position to provide the very specific kinds of services that you're providing to your customers?

What I think makes us unique from other people in the industry, and I'm going to speak to -- from a domestic and international perspective, is we are providing the complete package for both the machining of the products and the fabrication of the large scale products together under one roof. Most of the competition, especially domestically, is either specializing in the machine part or specializing in the fab part, and that poses for our customers a logistics challenge to buy part of the project from one vendor, ship it to the other vendor, to do part of the other job and then ship it back to somebody else to finish. When they come to us, we finish it. We not only help them on the manufacturing/engineering side of it, and by the way, that's a good place to start, that also separates us. A lot of the products or technology brought to us are wonderful paper tigers that can't be built.

So one of the other services we offer up front is the manufacturing/engineering side to figure out how this can be made. Of course that's a billable service. And then going off and making it complete, and testing it in the case of products like a Still River product that even involves testing the finished product, except for the beam. So the combination of being able to do the manufacturing/engineering, the machine, the fab and the test under one roof really gives us a unique opportunity and less competition from the marketplace.

Secondly, I know it's early in the game, but are there -- in the same connection, are there other companies out there that might be worthwhile looking for acquisition to acquire?

We -- we're always keeping our eye open. Obviously Jones Lang is out looking at various potential sites where we can build the industrial gas waterfront facility, and part of that is looking at what may be existing infrastructure. Not to, not to downplay any potential acquisition, but we have to go back to my vision for this Company. We're in five very important verticals with Tier-1 customers in every vertical, and historically, we have not expanded the potential with these Tier-1s. You know who our number one customer is in solar and we just added two other Tier-1s in solar. Doing it right with those three Tier-1 customers is a huge opportunity for this Company.

In nuclear, we are servicing two of the Tier-1s, and it's no mystery, it's Westinghouse and AREVA, doing things right with Westinghouse and expanding the potential that we can offer by aligning with them can be a huge opportunity. That list goes on to defense with Newport, General Dynamics, BAE, it goes down the list. This Company has a phenomenal amount of Tier-1s, we just haven't expanded our potential with them. So we're really busy right now, making sure we do the right things with our existing Tier-1s and the four new ones we added, because the revenue opportunity is phenomenal with what we have. So we just need to do what we have right and this will be a phenomenal top line Company and bottom line Company.

And finally, do you see any economic headwinds that might change the prospects for the coming year? For example, are there any slowing down in China or in any of the particular industries that we're focusing on?

Well, the good news for solar is the Chinese have now pretty much taken command of polysilicon production. I think in GT's report, they showed an increase in polysilicon production. The Chinese have taken polysilicon prices from $65 spot price as of January down to mid to high $20s. That has lowered the cost of solar panels from $1.95 a watt to the $1.40, $1.35 a watt. That's creating a phenomenal, phenomenal demand. The Chinese market is responding globally to any changes for feed in tariffs, tax incentives. And of course recently in the United States, our Energy Commission now changed the requirements of what is an ARRA solar panel from 80% US component content to now just the cells and the rest of it can be from China. So now I see the solar market for China remaining quite strong for the years to come. And nuclear, by the way, let's not forget their 26 sites, which are still permitted and moving.

Okay, thank you very much, and keep up the good work.

Thank you.

Thanks, Robert.

Thank you. And I'm showing no further questions at this time. I'll turn the call back to management for any closing remarks.

Well first of all, everyone, again, thank you for tuning in. Like I said, I'm very pleased with what we've accomplished both top line and bottom line for the Company in 2011. I'm looking forward to having a wonderful speech with you in 2012, and at least delivering that four number that I've promised on this call. And again, thank you, everyone, for the support and we'll talk to you soon. Thank you.

Thank you.

Thank you, sir. Ladies and gentlemen, this concludes the TechPrecision Corporation fourth quarter 2011 earnings conference call. We thank you for your participation, and you may now disconnect.