TechPrecision Corp (TPCS) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the TechPrecision Corporation fourth-quarter fiscal 2012 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). This conference is being recorded today, Monday, July 16, 2012.

I would now like to turn the conference over to Jeff Stanlis with Hayden IR.

Thank you and welcome to everyone joining us today. On the call with us today are Jim Molinaro, TechPrecision's Chief Executive Officer, and Rich Fitzgerald, Chief Financial Officer.

I wanted to mention this call is being simulcast on the Internet through our website at www.TechPrecision.com, and there is a slide presentation today. If you have not done so already, now would be a good time for you to go to the site and download the slide presentation. You can find it in the investor section of TechPrecision's website. In addition, the webcast has a slide presentation attached to it and a link to that webcast was provided in today's press release.

If you'll turn to slide 2, before we begin, may I 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, any projections as to the company's future performance represent management's estimates as of today, July 16, 2012. TechPrecision Corporation assumes no obligation to revise or update these forward-looking statements.

I would now like to turn the call over to Mr. Jim Molinaro, TechPrecision's CEO, to provide opening remarks. Jim?

Thank, Jeff. Good day, everyone, and thank you for joining us today. I would like to ask everybody to turn to page 3 of the presentation, which just goes through an agenda. On the call today we will follow an agenda that will include an overview of our fourth quarter. Rich Fitzgerald will then detail our fourth-quarter and fiscal 2012 financial results.

I will follow-up with a discussion of the challenges and transition at our Ranor division, opportunities at WCMC, our China subsidiary, the progress of our diversification efforts, and close with our expected fiscal 2013 pipeline and outlook.

Now if you would please turn to slide 4. This was an important transitional year for us and while this transition has impacted our financial results, the strategic progress we made positions us for robust growth and profitability.

In our fiscal fourth quarter of 2012, we continue to move toward diversifying the Company with two platforms for growth and a more diversified end customer product base. The progress we have made is not yet evident in our consolidated financial results; however, we believe our transition is nearly complete.

Our Ranor division experienced a heavy volume of first article and prototype projects throughout fiscal 2012. These were complicated projects sourced from the alternative energy, commercial and defense sectors. These projects adversely impacted our revenue mix and gross margin in fourth quarter and for the full year. As a result of the heavy prototyping and first article project mix in fiscal 2012, our Ranor division missed their internal revenue plan for fiscal 2012 by over $5 million. Much of this work is largely behind us and the last of these prototype projects have [shipped] during our Q1 of fiscal 2013.

Bob Francis, the new President and General Manager of the Ranor division, along with his new management team are transitioning the division to turn these prototypes into significant profitable production opportunities for ongoing performance improvement during fiscal 2013.

We expect to see significant growth in the medical, nuclear, and defense sectors. Our backlog and pipeline support our fiscal 2013 strategic plan to return this Company to profitability and growth.

For our WCMC division in China, WCMC generated $4.6 million in its first nine months of volume production in fiscal 2012 and we now have four customers and five products qualified at this division. WCMC remains strategically positioned to benefit from the acceleration of multiple sapphire opportunities.

As you may recall, WCMC received a purchase agreement for $9.5 million in February 2012 from the existing Tier 1 customer for the production of sapphire chambers. This purchase agreement for production volumes follow the completion of the prototype units which were delivered to the customer earlier in fiscal fourth quarter. WCMC will begin to ship these production volumes of sapphire furnaces in Q2 of fiscal 2013.

As a result of the strong demand for sapphire along with additional customers and products, we expect our WCMC division to double in revenue for fiscal 2013.

If you would please turn to slide 5. Historically revenue fluctuations have been a major part of our business as there has been too much dependence on just a few major customers and products. When viewing this slide of our product mix by market segment, you can see a significant portion of our business was generated by a small number of major customers, the largest being our solar customer. The balance of our business consists of discrete projects for numerous other customers.

Our largest customer since fiscal 2008 was a leader in the solar energy space enabling high-quality multi-crystalline wafer production. This customer accounted for 34% of our net sales for fiscal 2012 as compared to 55.5% of total net sales for fiscal 2011. Fiscal 2011 -- fiscal year 2011 sales to this customer were exclusively through Ranor while in fiscal 2012, we generated over $4 million in sales to this customer from our WCMC division in China.

In the fiscal fourth quarter of 2011, this customer accounted for greater than 50% of our revenue base and sales to this customer decreased to approximately 20% of our overall sales during fourth quarter of fiscal 2012 as the legacy solar products were shipped into China.

While the Company's overall sales volume to the (inaudible) dropped to 34% during fiscal 2012, we maintain our revenue base in the $32 million to $33 million range through increased sales to customers in the defense, commercial, and other sectors largely by taking first article production and prototype projects.

We continue to focus on our strategic imperatives and expect to see significant growth in the medical, nuclear, and defense sectors for Ranor over the balance of fiscal 2013 and beyond.

Now I will turn the call over to Rich for a more in-depth review of our financials. Rich?

Thank you, Jim. Please turn to slide 6 in the slide deck, if you would. First, I would like to review the three months ended March 31, 2012 and then address the full-year period. For the three months ended March 31, 2012, revenue was $6.1 million compared to $8.1 million in the same quarter of fiscal 2011 one year ago. The primary reason for the $2 million or 24.7 year-over-year decrease in revenue was the complexity of a heavy mix of prototype and first article projects at both our WCMC subsidiary in China and at Ranor in Massachusetts.

During the fourth quarter of fiscal 2012, our WCMC subsidiary was preparing to transition from the manufacturer of solar furnaces to sapphire furnaces and Ranor was completing large prototypes for commercial and defense customers.

From the perspective of sales mix, within the fourth quarter of fiscal 2012, reported revenue from alternative energy customers was $2.4 million or 39.5% total Q4 revenue. This compares with $5.1 million or 64% of total revenue reported in the comparable fourth quarter of fiscal 2011. Q4 fiscal 2012 sales to customers in the commercial industrial sector amounted to $0.9 million or 15% of consolidated Q4 2012 sales while revenues to customers in the defense and aerospace sector during the same quarter totaled $2.4 million or 39% of total fourth-quarter sales 2012. During the quarter ended March 31, 2012, sales to nuclear power sector-based customers were $0.3 million or 5.6% of the total quarter revenue and medical device sales were approximately $82,000 or 1.3% of total Q4 2012 revenue.

Gross profit for the quarter ended March 31, 2012 was approximately $200,000 or 0.03% of sales compared to a gross profit of $2.2 million or 26.7% of sales for the fourth fiscal quarter of last year.

Contract losses of $1.5 million incurred during the fourth quarter of fiscal 2012 on US production resulted in significant gross margin erosion within the quarter. As Ranor transitions away from a heavy volume of prototyping and first article production back to a mix of business that features repeat production work, margins should return to historical levels. We expect Ranor's mix of business to shift back to featuring a greater percentage of repeat production orders beginning with the second quarter of fiscal 2013.

Turning to expenses, selling, general, and administrative expenses for the fourth quarter were $2.8 million which compares with $1.8 million of selling, general, and administrative expenses in the year ago fourth quarter ended March 31, 2011. This reflects an increase of $1 million or 61%.

The majority of the year over increase is attributed to higher staffing levels and payroll-related costs of $0.3 million in both the US and China. Additionally, nonrecurring costs of $0.3 million and $0.2 million were incurred during the fourth quarter for a research development project and costs associated with post employment severance benefits respectively. The Company also incurred approximately $0.2 million -- I'm sorry, $0.27 million -- I'm sorry, $0.2 million in consulting and professional fees associated with its China operation.

Net loss for the quarter ended March 31, 2012 was $1.3 million or $0.07 per share basic and fully diluted based on 17.8 million shares basic and fully diluted weighted average shares outstanding. Due to the loss position in the fourth quarter, all common stock equivalents were deemed anti-dilutive for the quarter ended March 31, 2012. This compares with net income of $183,000 or $0.01 per share basic and $0.00 per share fully diluted on 14.9 million basic shares outstanding and $22.9 million fully diluted weighted average shares outstanding in the prior-year period.

Moving onto year-to-date financials, for the full year ended March 31, 2012, revenue increased 3% or $1 million to $33.3 million from $32.3 million in the same full-year period a year ago. Gross margins for the full year ended March 31, 2012 was 15.3% or $5.1 million in gross profit compared to gross profit of $30.7 million or $9.9 million of gross profit for fiscal 2011 a year ago. Gross profit during fiscal year 2012 was lower due to contract losses of $2.4 million incurred on first article and prototyping projects primarily in the US. Management believes the issues related to contract losses were resolved late in the first quarter of fiscal 2013 and believes margins should begin to normalize in the second quarter of fiscal 2013.

Selling, general, and administrative expenses for the 12 months ended March 31, 2012 increased to $8.4 million from $5.2 million for the full year period over the prior, reflecting an increase of $3.2 million or 63%. Primary drivers of this increase were higher staffing levels and payroll-related costs of $1 million in the US, $1.2 million in China to support business development and our China expansion.

Non-cash share-based compensation also increased $0.3 million when compared to the prior year. Additionally, increased business developed activity and travel to and from our China operation resulted in additional travel-related costs of $0.5 million during fiscal year 2012 when compared to the prior year.

We also incurred approximately $2.7 million on a research and development project completed in fiscal 2012.

Net loss for the full year ended March 31, 2012 was $2.1 million or $0.13 per share basic and fully diluted on a weighted average share count of 16.7 million basic and fully diluted shares. For fiscal 2011, net income was $2.7 million or $0.19 per share basic and $0.12 per share fully diluted based on 14.5 million basic shares and 22.9 million fully diluted weighted average shares outstanding a year ago. The fiscal 2012 net loss includes a $1.4 million tax benefit while the fiscal year 2011 net income figure includes tax expense of $1.6 million.

Turning to backlog, we completed the year with a backlog of $22.4 million at March 31, 2011, down from $32.5 million in the previous year. The fiscal 2011 backlog included approximately $10.8 million of open purchase orders from the Company's largest customer while the Company's backlog at March 31, 2011 did not feature any open purchase orders from this customer.

The $9.5 million purchase agreement executed in February 2012 was not included in the backlog at March 31, 2012. The Company's backlog as of July 13, 2012 was approximately $28.9 million including $2.1 million of open purchase orders issued under the $9.5 million purchase agreement from February. We expect to receive purchase orders for the balance of the $9.5 million purchase agreement over the remainder of fiscal 2013.

Now if you'll please turn to page 7, to slide 7, rather. Turning to liquidity and balance sheet at March 31, 2012, we had $2.8 million in cash and cash equivalents and net working capital of $10.2 million as compared to net working capital of $13.6 million as of March 31, 2011, a decrease of $3.4 million or 25%.

Cash used by operations was $2.6 million in the current year as compared to cash provided by operations of $1.3 million in the previous year. Cash flows from operations were impacted by the swing from net income of $2.7 million in fiscal 2011 compared to the net loss of $2.1 million for fiscal year 2012.

We also invested approximately $2.7 million in the previously announced plan expansion and new equipment deployment at Ranor during the full-year period ended March 31, 2012. Both the Gantry Mill and the plant expansion were substantially financed by the December 2011 bond financing we completed with Sovereign bank and the Massachusetts Development Authority last year.

Turning to long-term debt, total that outstanding increased by $0.6 million to $7.1 million as of March 31, 2012 from a base of $6.6 million back on March 31, 2011. During the year ended March 31, 2012, we repaid $1.4 million in debt and borrowed an incremental $1.9 million resulting in the net increase referred to earlier of $0.6 million.

On July 6, we executed an 11th amendment to our credit facility and obtained a waiver of our failure to comply with certain EBIT-based debt covenants at March 31, 2012. The 11th amendment also waives covenant testing for the fiscal quarters ended June 30, 2012 and September 30, 2012. It additionally extends our $2 million revolving credit line which was previously scheduled to expire on July 31, 2012 and keeps it in place through January 31, 2013, effectively a six-month extension.

The complete terms of the amendment are disclosed in an 8-K report previously filed with the Securities and Exchange Commission as well as within our 10-K which is being filed today. I encourage you to review these filings in their entirety. The timing of the amendment and the resulting impact of integrating its final terms into our annual report on Form 10-Q resulted in the delayed filing of our annual report and the subsequent delay in this conference call.

As a result of the net loss for fiscal 2012, we filed for an accelerated refund of estimated federal payments remitted during Q1 and Q2 of fiscal 2012 during April and received in May a refund of $553,000. When we file our 2012 tax return later in fiscal 2013, we will be requesting a refund of previously remitted state tax payments of $184,000 and also electing a carry back of the 2011 tax loss to recover federal taxes paid in fiscal 2010 and 2011.

As a result of these planned tax positions, we had a tax receivable of $1.75 million as of March 31, 2012, of which $553,000 has already been received. These tax recovery elections will serve to enhance our liquidity as we move through the remainder of fiscal 2013.

With that brief financial synopsis, I would now like to now turn it back over to Jim for some additional remarks.

Thank you, Rich. If everyone would please turn to slide 8, many of the transitional challenges at Ranor as previously mentioned related to its largest customer migrating solar production from domestic sources to Asia, which eliminated over 50% of Ranor's historical revenue base. Back filling the shortfall, the new business resulted in the heavy prototyping which compressed revenues and margins. Completing prototypes for new customers while suffering revenue and gross margin losses was unacceptable and a key reason for my decision to make a change in leadership at our Ranor division.

With new leadership in place since February 8, we have taken specific steps to eliminate the contract losses related to prototyping activity and accelerated efforts to rebalance Ranor's product mix. Bob Francis and his new management team are developing a new empowered and accountable culture for all levels of management to deliver the financial performance for the Ranor division and delighting all of our customers with the highest level of quality products shipped on time.

I have already received several calls from several of our strategic customers telling me how pleased they are with the changes in performance and culture that they see and experience at Ranor.

If you would please change to -- turn to slide 9. Over the last two years, we have been repositioning the Company from being a provider of peace-part production units to an overall product solution provider which is key to sustainable growth and profitability. Our product solution strategy involves supplying the comprehensive components in the manufacturing process from engineering to producing large parts, small parts, mechanical and electrical to completing and testing an entire product solution. This capability leverages our strategic benefits and makes us more a valuable long-term partner to our customers and potential customers for their products needs.

The more value we can add to our solutions means less opportunity for competitors to take the business. Our example shown here on this slide is the difference between providing a solar furnace peace-part versus the sapphire furnace, which is a complete product solution, electrical and mechanical.

If you would, please turn to slide 10. We have recently received information from several customers which reinforces our outlook for growth in 2013 and should expand Ranor's capacity for specialized production volumes allowing us to migrate away from a heavy mix of prototyping. Supporting our outlook for fiscal 2013, Mevion has received FDA 510 clearance for its S250 proton therapy system. TechPrecision is providing -- has been providing exclusive manufacturing services to Mevion and this regulatory clearance sets the stage for significant growth. Mevion has publicly stated they expect to install more than 12 units over the next 24 months.

In addition, a key customer in the isotope transport sector received its NRC approval during our fourth fiscal quarter and we expect increased business for the production of transport casts to facilitate this customers' efforts.

These isotope transport casks have been submitted for fissile material transport which is expected by second quarter of calendar '13 creating further demand for transport casks.

We are strategically positioned whether customers produce made in America products for the country's medical, nuclear, and defense requirements. When coupled with our ongoing participation in providing product solutions for these sectors, our increased order volumes for sapphire, poly silicon, and other industrial sectors position us for growth in fiscal 2013.

If you turn to slide 11, our strategy is to leverage our advantages to provide a complete product assembly and to expand our business into areas that have shown increasing demand in which we believe could generate higher margins. This slide gives you a view of where we are targeting our business by sector along with our current backlog as of July 13.

Please turn to slide 12. Fiscal '12 produced several challenges but also provided many opportunities for transformation into a diversified two-platform company. A review of our fiscal year 2013 outlook reflects that our strategy of diversification with multiple customers and products should continue to gain momentum, highlighting significant growth in the medical, nuclear, defense, and sapphire sectors.

I'll turn the call over to the operator for the question-and-answer session. Operator?

(Operator Instructions). Theodore O'Neill, Wunderlich Securities.

Thank you. Rich, it says here in the China subsidiary contributed $4.6 million in revenue in the nine months and to the left, in the third quarter, the press release says they did $3.2 million in the quarter. So does that mean they did $1.4 million in the fourth quarter?

That's correct, Theo. But you need to keep in mind that the revenue recorded in the third quarter was six months of -- well, five months of production, not just a quarter's production. (multiple speakers) the way the shipments trailed out?

Yes, so it was really more -- it was recognized in the December quarter but it was more than a quarter's worth?

Correct. Correct, there was some carryover that we talked about in the second quarter there.

Right, so then the question, Jim, is when we talked about -- when you released the third-quarter results in February and guided to higher numbers for fourth quarter, you were already well into the fourth quarter. So what exactly happened between February 14 and the end of March that caused Ranor to miss on $5 million at the top line?

Two of the prototype units in particular fell out of the quarter into the next quarter and they were quite significant in revenue.

So the next quarter revenue should be higher by $5 million from whatever your customer --?

I'm not going to speculate on that yet.

And it will be largely margin-less as well?

Again, the prototype orders and the way they were structured, they had issues to deal with so these issues would carry into Q1 and we have more of a fresh start starting in our Q2.

The losses, Theo, though, are all accrued as of March 31.

The losses for --?

For all -- any prototypes or first article work that was still in process.

Okay, thanks very much.

(Operator Instructions). Greg Garner, Singular Research.

Thank you. Can you give us a sense for how the prototyping to production shift has been progressing in the first quarter? I believe it mentions in your press release that it was ongoing through the end of May. Can you give us any sense for how that's progressing? In other words, has it shifted to production run already towards the end of the first quarter?

For one of the defense products, it is shifting to production and will continue through fiscal 2013. The other prototypes have not yet shifted into production being in the commercial gas and there was one alternative energy project that has not shifted into production yet.

Okay, any timeframe for when those would be expected to shift? Is it the second quarter for those two that you had referenced?

We are very dependent on the customer rolling out the product as fast as they can, so we are not controlling it. I think that would be really aggressive to see that that's going to happen.

On slide 12 that we put out there with the balance of the market shifts, the majority in the revenue growth as we repeated is going to come from what I will call more of a production launch in the medical. There is a defense product that continues to repeat and that is quite healthy in the backlog and in particular also in nuclear. So it's more of a balance you will see in those sectors.

We also of course with what I will call the collapse of the solar panel industry, we wanted to highlight and separate the sapphire portion in this company and then we lumped in poly silicon and solar in one sector. This is -- so from a transition historical, if you look at the chart on the left for fiscal 2012, essentially a better case than what it has been for historical back to fiscal 2008 where more than 50%, 55% of these revenues from the Company was just from one customer.

So the growth in production will be in those three areas, as we pointed out, medical, nuclear and defense, and sapphire being completely new as a revenue and a production revenue for this Company.

Another way to answer your question, Greg, is in the fourth quarter, we were completing prototyping on some of the sapphire products and we are now looking for Q2 to see those go into production volume. So that's part of what we are featuring and looking forward as we look at the back half of 2013.

You are referencing just the Ranor for those -- that prototyping for sapphire. Is that right?

No, sapphire is all China.

Okay, so there's all no prototyping for sapphire in Ranor? It is all China?

Yes.

And that's starting to move into production already?

Yes, the production schedule is set with our customer to start shipping in our Q2.

Okay, that's what you are referencing. Okay. And to Mevion, is there anything you are seeing in the order pattern that would give you any kind of a little more clarity than just 12 products in 24 months? I just wonder, is there any sense for -- is that pretty much evenly distributed? Is there a slower ramp up initially or something?

We are only in a position to repeat what they have stated publicly. Obviously we meet very closely with them and have pretty firm production schedules through calendar 2013 at this point -- not fiscal, calendar, and that they are very firm schedules.

You will notice the growth is quite large. I'd have to go back to the revenue breakdown but I think in fiscal 2012 for Mevion was around $1.5 million. So we are already comfortably well above that right now.

That looks good, but it looks like with the commercial expected to go down, does that means the commercial gas product is probably pushed out a little bit?

The commercial gas -- there's two issues, the commercial gas product -- the good news is on the customer's [pipe] installed and that's the good news and we will see how long it takes for that to get tested and designs finalized for what size configuration they want in the future. The other issue with the commercial has been a catch-all bucket for what we call shop projects where Ranor would get RFPs to say machine this piece or fab this piece and we'd do it gladly. Very little repeat business and doesn't complement what we could do as a company from an engineering materials system providing and testing.

So part of the issue is our strategy is to get away from that part of the business where we are one of five people quoting a job. You are not going to get the margins that we want and we are not going to get the repeat business that we want so that's also what's going on in commercial.

Okay.

It's not a clear product.

Okay, in the Alpha/Omega systems product, does this fit under nuclear?

Yes.

And what can you tell me about the opportunity there? I just am not familiar with that one.

There's two aspects of the nuclear transports for isotopes and fissile material. Right now the NRC has approved this cask and it comes in three sizes for isotope transport. So universities, hospitals, research, you are carting around specific isotopes. The NRC has laid down the goblet gauntlet with any isotope company, hospital, or university where they are no longer allowed to use any of the old transport casks and the drop dead date is December 31 this year.

As a result, the opportunities are wonderful for the (inaudible) Alpha/Omega is getting infused with and we are getting infused with for Isotope, universities, hospitals that need to purchase these casks. We hear varying estimates that the isotope casks in the fields today are anywhere from 500 pieces to 1500 pieces.

Remember -- and as a background, the last time the NRC approved an isotope transport cask was about 30 years ago so these things are pretty old.

The second part is that applications are being made now with the NRC with the same casks to allow this cask to transport fissile material and in the nuclear world or defense world, they are constantly doing research on new fuels for reactors or submarines or aircraft carriers and the Department of Energy typically controls that. The DOE is using canisters right now that are what we call wet load transport and also very, very old, like to the tune of 30 years.

We are expecting the NRC to give us fissile approval by second quarter of calendar 2013, which then opens us up for a whole additional market so we are dealing with hundreds of old casks out there that cannot be used to move material around and it has to be phased out quickly. So it's a tremendous, tremendous opportunity for the Ranor division and we are excited about it and we're building production units now.

So this seems like the primary opportunity timeframe is these next six months. Is that right?

Yes, if you want to move an isotope, you have got to get permission to do it from the NRC and they are going to tell you you can't do it unless you have a canister.

What's the total market for that if it's only 500 even on a small one?

It's been hard to quantify unless you have got -- the NRC has all that data. You'd have to be one of the people licensed by the NRC to get the data. We have tried but haven't been able to access it, Greg. There's a lot of isotopes going on.

There's a lot of isotopes, but if you are asking about how large is the canister market, if you go to [AOS's] website, they will show you the three sizes that we are producing and the largest, the most expensive, and that carries with it a seven-figure price tag.

Okay, all right, thank you.

And the smaller one you can put in a suitcase. What's that?

I appreciate that. This is helpful. This is a good understanding of that. So there's not really -- is that the majority of would you say of the nuclear increase or half of it or anything?

That's a pretty good increase, yes.

We are also building more assemblies right now for [summer and vocal] as their construction is moving forward. So we are seeing a nice little uptick in summer vocal products and now we are currently working on supplying some of those product assemblies also for Dubai, who just purchased another four AP 1400 reactors. So we will see some more growth there.

But when we go back to that previous slide or a couple slides ago, slide 10, it shows a cut away of the cast. That type of nuclear product assembly we want to make. We are supplying materials, labor, system assembly, test certification and off it goes, so that's the ideal nuclear product. Then there is like that in reactors but this is hot and heavy right now.

Okay and -- which brings up a question on the sapphire furnaces when you are supplying more of a complete system, does that in any way affect the margins positively for does it cause margins to go down because other component parts don't have the margin?

It actually impacts it favorably. Again, you are delivering a system versus the customer saying hey, we want you to quote 10 hours of machining and we want to haggle over your labor rate. That's just what we want to get out of.

All right, well thanks. I'll get back in the queue and let somebody else come in.

[Pete Underland], [Miles Partners].

Thank you. With respect to the Mevion approval, I know you can't be too specific about the ramp but they said more than 12. Is it reasonable to think that that would be basically more heavily weighted towards year two than year one?

Again, we have a pretty good idea -- we don't have a pretty good idea -- we have the production schedule through calendar 2013. For calendar 2014, we have estimates and those estimates look like another 50% growth on top of the calendar 2013 growth. So it's again, we have taken this business which was doing $1.5 million in its this fiscal 2013 going to do very well but our fiscal 2014 even better and so I would expect you are really going to see fiscal 2013, fiscal 2014 and fiscal 2015 growth. Does that answer your question?

Yes, generally.

It should be three years of sequential growth in the medical.

And they are transitioning from what has been primarily a research company into a clinical company, so they have got to ramp up and be able to support these facilities clinically trained people, commission them, and get them going, so that will in some ways put a ramp on how many units and I think they will build to a greater number over time which is (inaudible)

And is each one of those units, is it fair to assume roughly $3 million in revenues to you guys?

What we're working on now is to continue to add value to that estimate and continue to add more product services and testing of the product and our goal would be to continue to increase the ASP on each one of these.

Historically we don't disclose specific ASPs by customer.

So does that effort go along with what you mentioned before about providing product solutions instead of just components essentially?

Yes, in the Mevion right now, we provide mechanical and electrical solutions and we actually make the thing move before we ship it. There's more and more and more value-added parts we can bring to and welcomed by Mevion to bring to help make it a more complete system. Then as we add more, we are adding more to the ASP of the system.

That's a customer where we have worked almost hand in glove with them over the years and they are on site. We are on site at their place, so it's a very symbiotic and sticky relationship between the two companies and we seek to maintain and build on that.

From your standpoint, what do you need to do to be able to ramp up to whatever their requirements are in terms of production?

We're going to be presenting our plan to the Board of Directors at the end of the month. Based on the current production plan through calendar 2013, we are fine equipment wise. We will be needing to add a few more machinist assembler fabricators. We will be adding people capacity in this period of time.

When we -- when we look towards -- I know it's a long way off but it seems to happen very quickly -- when you look into calendar 2014, we will be discussing with the Board an equipment need to make sure we can deliver the quantities that are being discussed.

Are you talking about a major piece of equipment or just some sort of --?

Capital would be about $1 million.

All right, thanks a lot.

(Operator Instructions). [Howard Rouse], Wunderlich Securities.

Gentlemen, in reference to comments you made in the release, gross profit margins which will return to historical levels, what would you expect in terms of gross margins for fiscal year 2013?

We view -- when we have a good mix of product and we are not heavily burdened with prototyping, we looked to be in the 28% to 31%, 32% gross margin range. It will bump around a little bit but those are sort of the book ends where we target ourselves internally.

Backlog, you mentioned as of $28.9 million?

As of July 13, it was $28.9 million as of July 13, yes.

Roughly as of last year at this time, what was it? Just trying to compare.

It was probably -- I'd have to go back and grab that. Certainly -- it was probably lower. It was probably higher at the end of March because we had a pretty big commitment from GT in order to get China up and going and that's what -- as we worked through that, the backlog tended to wane last year. What we've tried to feature in the press release here is we've got a purchase agreement, not a purchase order from GT of some $9.5 million. That's not backlog but it is invisibility and should translate into backlog as we progress through the year.

So I think we've done a good job of maintaining the backlog on a book to bill basis even without GT in there on the magnitude that they were last year. And if this purchase agreement were firm orders instead of a purchase agreement, we would have a pretty nice backlog right now.

Yes, you would add another $8 million to the number basically.

If you look at slide 11 and you look at the bottom line versus the top line of projected opportunities, does your gross margin go from 28% to 32% as you get to the higher number?

Yes, if you get to the higher number, your margin goes up. Your absorptions, everything is more favorable and it goes up as a result. Yes.

Fixed costs are fixed costs, so the more top line we can put through there, assuming we are pricing it properly, you should -- the margin gets easier to accrue to the Company.

Clearly we all -- everyone on this phone line understands that but tell us, will you be updating that slide as you go quarter-to-quarter, bringing it up or bringing it down so we can get a visibility for the fiscal year 2013? Because that slide is a couple of months old.

We will certainly keep the backlog. We can look at -- since we've put this out there saying these are our five sectors and these are our ranges, we can look at refining in a quarterly basis. If we see any significance, we may do that. If it's trending, we will keep it the way it is. Any significant changes we would probably update.

Just on the logical, if in fact without your affirming the number from Mevion Machine of roughly $3 million, you are logically then talking about three machines in 2013 fiscal and that they are going to do 12 machines over the next two years, you are basically talking about eight to nine machines the following year. Logically is that a fair comment?

Logically that is a fair comment.

Thank you.

[Steven Epstein], a private investor.

Is it fair to say that the Chinese production facility, WCMC, was formed to accommodate GT Advanced Technology?

Yes, very fair to say that.

Okay, and how much of that $4.6 million in revenue came from GT?

Roughly $4.2 million, $4.3 million.

$4.1 million and there's some services in there. $4.2 million is probably a good number. The rest is just prototyping for other customers that we didn't expect when we went there but we are happy to have (inaudible) relationships with.

Do you view GT as a viable customer going forward or is it going to be continually fluctuating business? What's going on there?

We view GT in the sapphire market and GT has been pretty public about how things have been going in the solar market but they've been very bullish on the sapphire market and we are bullish on the sapphire market. The difference in their business model as compared to historical, historical because they were installing so many multi-crystalline chambers a month, they were pleasing nine-month backlog of orders in, which is why the $30 million was so high. We said it was $10.8 million of it was GT back in last March.

Now what they are doing because things do fluctuate in the market, now they are taking and issuing these purchase agreements but we are getting basically three-month releases and it's more control for both our sake and their sake and it's working out very well.

But their bullish in the sapphire market and it's not just for LEDs. Of course what you have been reading about is iPhone and the other guys lining up to replace gorilla glass with sapphire and that's what got everybody pretty excited. That uses a lot more sapphire than an LED light bulb.

Okay, recently there were higher (inaudible) Chinese made solar products. Does that affect WCMC?

No. The solar market is saturated so solar is completely separate from sapphire. The tariff put on the Chinese solar panels by the Department of Commerce was humorous because it taxed -- it puts a 31% tariff on Chinese panels but if the Chinese companies actually import the solar cells from Taiwan or South Korea, the tariff is zero. So the DOC left a huge back door which did nothing to help the US solar panel market, which is why you saw announcements like GE decided to postpone indefinitely their new solar [factors]. So they flashed them with 31% tariffs with a way out.

Okay, what would happen with the credit facility? Why did the company have to go through that, getting that extension -- is it just a deterioration of the balance sheet or what happened there?

It's really the contract losses didn't give us the trailing EBIT so if you look in the second quarter and the third quarter, we had to go get waivers of some of the EBIT covenants that weren't quite -- we normally stride through those covenants with great headroom when we have the contract losses and we leak EBIT, it gets harder to meet those on a trailing basis.

What we ended up doing is I inherited a whole new coverage team at Sovereign Bank in late April, early May, really mid May and they wanted to sort of repackage the whole thing so that they could own it going forward and manage it on something other than an every 90-day basis. So we needed to repackage all that and then from just a pure GAAP perspective, we've got to be able to demonstrate that our long-term debt is long-term. It's not going to trip covenants in the forward 12 months on a prospective basis.

So that was something we needed to shore up and we really want to maintain this debt because it's very preferable. We've got nice rates on it and it's very low-cost debt.

Okay.

Working with a new team in the month of June, new to the bank, trying to get this all packaged up, it just leaked out into the back end of June and into July and didn't consummate until July 6; hence the delay in the filing.

Okay, I'm going to ask a very blunt question. I've been a shareholder for a very long time. I have had some clients in the stock as well. I see the assets starting to drop. I see the liabilities going up. I see costs going up especially with regards to WCMC. Is this Company in danger of bankruptcy? If your answer is no, just explain to me why.

Clearly we are not. If you look at the filings, if we were in that modality we would have different disclosures. Where I think we are is we have invested in G&A. We have done a significant expansion up at Ranor in order to add capacity there. That's capacity that will be loaded and purposed and allow us to service more of the Mevion opportunity, more of the AOS isotope transport business and all of the other sectors and customers we cover.

With regards to China, if we didn't do China because of GT's mandate that its supply chain be near its end markets, we would have been severing or very much diminishing our relationship with GT. We chose to maintain that investment and maintain the opportunity to continue to serve them as their markets ebb and flow.

So really what happened this year is we watched the solar -- why we got there and got qualified, we watched the solar market wane, which they have openly talked about, and we have been positioned for the sapphire market to pick up and get legs, which is what it is doing well. So again, it's a low-cost opportunity to be in China. While we are not getting the top line to cover the G&A, it's a low-cost expansion opportunity. It's a low-cost customer retention. We've just got to wait out the markets, be prudent, be patient.

Does that help put some perspective on it?

Yes, it does. That's it. Thank you very much for your answers.

Tony Pollock, Maxim Group.

Good afternoon. Could you give us a little going forward on prototypes and whether we are going to continue to see unprofitable substantial business and prototypes.

I think what -- we had a huge volume of this, Tony, and it was by just sheer mandate that we took 55% of our historic business in Massachusetts and moved it to China, that whole product line. So we needed to very quickly find opportunities that we could repurpose that freed up capacity going forward ideally in repeat production types of programs and in order to do that we had to do first articles at a minimum. In some cases, we took on prototypes.

We have looked at what we are doing there. What we want to do going forward is there will always be prototyping. There will always be first article projects in the mix as we continually refresh the product profile and the customer portfolio. We don't want to have this huge wholesale shift where we take on all of a sudden 70% of our business is prototyping and first article. That's a tough nut to crack.

We want to do it on a more balanced sustained basis going forward and we have really built our model to do that going forward. Jim?

The other thing -- I think we talked about it at the last call too is we want to be careful that the word prototype doesn't become a four-letter word because we have built five prototype products out of CMC and have proliferated them into production units and we did not lose any money on any prototype. The prototypes aren't a bad thing.

Part of the drive for Bob and I spoke about it in the script, Bob and his team if they are being asked to bid on a prototype, it is not just Bob making a single call how much to estimate or charge for this. It's the entire team from fab machining, materials purchasing, production planning, engineering to buy into doing this program, pricing it correctly, and then making sure the entire team is accountable for the estimates that they put forth. That's one of the systems and cultural improvements we talked about with the empowerment of the management team.

If you are for example in charge of machining operations and you tell me this prototype will take 2000 hours, you just bet your job that it's going to take 2000 hours. And people are -- when they are empowered and accountable, they are engaged and I would expect if we do any prototyping at Ranor, we've done the right way with the right culture and everybody buys into it to deliver the results. Prototypes do not have to be done at a loss.

Okay, I don't completely understand the fissile approval. Could you go into that a little more on what that means?

Fissile is fuel, reactor fuel, and isotope is gamma radiation equipment or proton beam will need isotopes replaced periodically so they can continue to work. Many universities in particular the Department of Energy, the Department of Defense continually work on developing new radioactive fuels and they have to be moved around, albeit in smaller quantities. The NRC has also been given the edict to make sure that fissile materials, which is arguably more potentially a problem than isotope, is transported properly. The NRC is doing a review of these canisters.

You have to apply -- you can't get a blanket license with the nuclear cask. You have to apply for a specific. Once it's granted, then you go into an amendment and you do up to four amendments on the cask saying great, this is wonderful. We're now doing all these isotopes. We would now like to add fissile material and again, those applications are being made.

They should all be completed -- all the paperwork should be done by September and targeting approval by the second quarter next year. It opens up a whole new market and albeit a greater market for the larger cask, and the nuclear transport world.

One of the features of these casks, Tony, is that they are much more tamper-resistant and tamper-evident. So when you go into a post-9/11 world and you want to track the most toxic substances on the planet and make sure that they don't move inappropriately, you put different requirements on the transport cask so the NRC and Homeland Defense and people like that really want to see these casks in the market and the old ones off because they are -- the old ones are not as tamper-evident or temper resistant.

So you will continue to expand the regulatory label for these casks, which is what our customer will be doing and that should broaden the types of material that can be transported and contained in these vessels or casks, rather.

How big a market is that, do you know?

Again, we are told numbers greater than 500 to 1500 casks currently exist in the United States alone and no one has put their finger on that because this is a design that is 30 years old. So for all intents and purposes, a very glorified 55-gallon drum and this has changed quite a bit.

The specifications that this cask meets were scripted by the NRC way back in 2004. So they are just now being met in 2012.

Okay, thank you very much.

Michael Potter, Monarch Capital Group.

A couple quick questions. On the WCMC at $1.4 million in revenue, is that correct for the fourth quarter?

Yes. $1.4 million is what tracked through in the fourth quarter and that was the tail of our solar production order from them initial.

Okay, are we profitable on $1.4 million of revenue at WCMC?

At a gross margin level, yes. On a fully loaded basis, it's about breakeven.

So breakeven on an operating basis and so that was the runoff of the tail end of the solar work? We're not starting the sapphire work until sometime in the current quarter, in Q2?

Correct.

What does that mean for Q1?

Q1, for the sapphire market, the work we have been doing is our customers come up with -- they've said it in their earnings call that they had come up with some unique improvements in their sapphire chambers to get higher and better yields and what we were focused on to support this customer is upgrading the units that were installed in the field with this unique feature so the customers get better yields. So we are completely committed to upgrades in our Q1 fiscal '13. That work is done and now we are shipping brand-new units starting on our Q2 -- starting now.

All right, I'm assuming that we are still supporting just the one customer out of WCMC?

Right now we are supporting three customers out of WCMC.

That are in production? I'm sorry.

That are in production, yes.

Okay, that's good, so that's a big difference versus one customer in Q1?

Absolutely, yes.

Okay.

Again, we have qualified four customers on five product lines with WCMC over the last 12, 14 months and right now the only volume orders we have are the sapphire orders and we look to see the others transition into volume. I think we just got our first production order from the steel industry at WCMC. So we are beginning to see other customers load in production type work, repeat production products.

Don't get me wrong, we like the alternative energy business but any long-term shareholder who's been here since fiscal 2007 has heard sapphire, sapphire, sapphire and one customer, one customer and -- solar, solar. We really are working hard to transition away from that 55% one customer solar identity that has been in place, which is part of the reason I was here to expand these products and other markets. We see the consequences when you have one customer making 55% of your business disappear. So we are really changing that identity and I think that came clear on slide 12 or slide 11.

One of the reasons it was important to get into the poly silicon end of the solar or just the poly silicon business. As you watch GT solar over the years and I've noted this, their poly silicon business is countercyclic with the solar business, so people add the upstream capacity and then they jump later in the market add to the midstream capacity, which is where the multi-crystalline and the solar products sit. You've got to have poly silicon in order to make panels and process them, so we are happy to be a little bit more balanced and now on the poly silicon customer, that can be cycling differently than GT on the solar product we historically make, so we think we're more balanced on that regard as well.

If I may make a comment about changing slide 11, literally it says up there solar pipeline is probably fair enough. We could probably just change that to poly silicon pipeline at this point.

Yes, most of what is in there is poly si right now. There's very little solar.

Okay, on the contract losses, how many unprofitable contracts were we working off?

Contracts, we don't really talk about but as I look at tracking the numbers I'm featuring in there, we are talking about four to five customers.

Four to five customers and I'm assuming -- how many articles then?

In some cases, it was a number of articles. In other cases, it was two large articles, so it's more the collective load, Michael, than any one metric from one customer.

Okay, but this was not a single customer or a single contract or article issue?

This was not a single customer or a single prototype. It was multiple.

Okay. Rich, you had mentioned that -- both you guys had mentioned that we had run off the last of these money-losing I guess articles in the first quarter. I'm assuming some ran off in the fourth quarter as well but we accrued for the projected losses all in Q4. Do I have that correct?

Any open projects that we have a contract loss on had to be accrued back into the fourth quarter under GAAP.

Okay, so what does that mean then for Q1?

So Q1 would only have losses and margins relative to Q1. The only impact to Q1 is we have projects that are consuming hours to the extent they are on loss contracts that have been accrued with no revenue benefit. So it can dampen Q1 revenue is the only impact it can have.

So we have projects that are consuming hours to correct these contracts?

Open contracts at (inaudible) yes, that's the only real dynamic you can have.

Any sort of estimate of the expense associated with that for Q1?

I think the only comment we made on Q1 in the press release is we expect to be a nominal loss for Q1.

Okay, and I'm assuming a significant increase in revenue as well versus Q4?

No, I don't think we'll see the revenue uptick till we get production volumes out of China in Q2 and we get Ranor back into a mix that features repeat production work. And we believe that takes place in Q2, not Q1.

Okay. Thanks, guys. I'll get back in the queue.

Theodore O'Neill, Wunderlich Securities.

Thanks, I wonder if you could give us an update on what's happening with the new facility?

Yes, new facility, we have identified it target products we would like to put in the new facility. We are reviewing that with the Board of Directors but I am not going to spend a dime on the new facility until Ranor is cash accretive again. And so when I see the cash accretive and that looks like it's happening on a good four -- three, four quarters out basis, then I will discuss spending the money on the new facility but right now I'm not going to do that.

Great, thank you.

I would now like to turn the conference back over to management for closing comments.

As we stated a couple of times, fiscal 2012 produced several challenges but also provided many opportunities for transformation of this Company and particularly Ranor into a diversified two-platform company. A review of our fiscal year 2013 outlook reflects that our strategy of diversification with multiple customers and products should continue to gain momentum, highlighting significant growth again in the medical nuclear defense and sapphire sectors.

Ladies and gentlemen, thank you for joining us and thank you for supporting our strategy to diversify TechPrecision for long-term sustainability, growth, and profitability. Our execution in 2012 came more slowly than any of us anticipated but we are confident that the formation of our China subsidiary to meet the shipping demands of key customers and repurposing of the Ranor division over the same time period is key to delivering expanded customer base, diversified production growth and profitability and we envision for the Company as we continue through fiscal '13.

So again, have a good evening and thank you for taking the time. We look forward to our next call.

Ladies and gentlemen, this does conclude our conference for today and we thank you for your participation and at this time you may now disconnect.