TechPrecision Corp (TPCS) 2017 Q1 法說會逐字稿

Good day, everyone, and welcome to today's first-quarter 2017 earnings call.

(Operator Instructions)

It is now my pleasure to turn the conference over to Mr. Brett Maas, managing partner of Hayden IR. Please go ahead.

Thank you. On the call today is Alex Shen, Chief Executive Officer; Tom Sammons, Chief Financial Officer. The call is also being simulcast on the Company's website, www.TechPrecision.com.

Before we begin I would like to remind our listeners that management's remarks may contain forward-looking statements which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the Company claims the protection of the Safe Harbor for forward-looking statements as contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today and, therefore, we refer you to a more detailed discussion of risks and uncertainties in the Company's financial filings with the SEC.

In addition, projections to the Company's future performance represent management's estimates as of today, August 15, 2016. TechPrecision assumes no obligation to revise or update these forward-looking statements.

With that out of the way I'd like to turn the call over to Alex Shen, Chief Executive Officer, to provide opening remarks. Alex?

Thank you, Brett. Good day to everyone and thank you for joining us. The first quarter of fiscal year 2017 was another quarter of operational and financial progress as we delivered a profit for the fifth consecutive quarter.

Prior to my watch we had 12 consecutive quarters of net losses. This is the fifth profitable quarter the Company has reported since June 30, 2011 and the fifth profitable quarter since I joined the Company back in late June 2014. We achieved this result with our consistent, sharp focus on productivity initiatives and top-line growth with key customers.

We generated $1.4 million of cash from operations and increased our cash position to $2.9 million at June 30, 2016. This progress has enabled us to refinance our equipment loans with a new lender under a master loan and security agreement at a fixed interest rate of 7.9%, part of an ongoing effort to reduce our principal and interest payments and to improve our balance sheet. The 7.9% interest rate is approximately 290 basis points lower than the rate on the Utica equipment loan that it replaced.

Under the terms of the MLSA we will decrease our principal and interest payments over the next three fiscal years by more than $300,000 per year. We continue to replenish our backlog, focusing on new business contracts with our core customers. Our backlog at July 31 was $20.2 million compared to $17.1 million at June 30, 2016 and $19.8 million at March 31, 2016.

We have not altered our focus. We target defense, nuclear and precision industrial as our primary markets. Net income in the first quarter of fiscal 2017 was more than double that of the first quarter of fiscal year 2016 on net sales of $4.6 million, a 6% increase in net sales over the same year-ago quarter.

Now I'd like to turn the call over to Tom Sammons to tell us more about our first quarter financial results. Tom?

Thank you, Alex. As Alex mentioned net sales were $4.6 million or $270,000 higher when compared to the same fiscal quarter one year ago. Increased shipments of large-scale medical device components in the precision industrial markets were partially offset by lower net sales in energy and defense.

Gross profit increased for the first quarter of fiscal 2017 to $1.5 million compared to $1.3 million for the first quarter of fiscal 2016. The improvement can be attributed to higher-margin product mix and lower factory overhead costs. The improved margins reflect our commitment to process rigor and control from quotation to delivery.

Our net income for the quarter was approximately $445,000, or $0.02 per share basic and fully diluted for the three months ended June 30, 2016 as compared to a net income of $206,000 or $0.01 per share basic and fully diluted for the three months ended June 30, 2015. Cash paid for interest expense was $365,000 in the first quarter. This includes a non-recurring payment of $249,000 for deferred interest on the Utica equipment loan in connection with our MLSA refinancing on April 26, 2016. First-quarter fiscal 2017 EPS is based on an average weighted share count of approximately 27.3 million for basic and fully diluted shares respectively.

Turning to the balance sheet, our working capital increase by $1.4 million to $1.9 million at June 30, 2016 compared to $0.5 million at March 31, 2016. As Alex mentioned earlier we finished the quarter with $2.9 million in cash at June 30, 2016, representing an increase of $1.5 million from the March 31, 2016 year-end balance.

Cash flow provided by operations was approximately $1.4 million in the first quarter of fiscal 2017 due to our improved operational performance. We borrowed an additional $2.8 million from our new MLSA and used $2.7 million of cash to pay off our remaining principal and interest on the Utica loan.

With that I will now turn the call back over to Alex. Alex?

Thank you, Tom. Moving forward we will continue our focus on winning new contracts with our established customers in the defense, energy and precision industrial markets utilizing our core competencies, utilizing our know-how in custom, large-scale, high precision fabrication and high precision machining to be a valued high-quality supplier. In particular, we see meaningful opportunities in the defense market.

Opportunistically, we will pursue contracts in the aerospace, nuclear and medical sectors while continuing to execute on operational run rate improvements to increase our gross margins and cash flow. We will further strengthen our balance sheet by taking advantage of refinancing opportunities and paying down debt.

Now I'd like to open up the call for Q&A.

(Operator Instructions) Walter Schenker.

Hey Alex. Again, I don't do this lightly, congratulations on continuing to show progress with the business and profitability and cash generation.

I may have missed it because I've got only three conference calls going on at the moment, but did you indicate first how much -- I will just ask a few questions and let you respond, how much of the backlog could be expected, no guarantees, to be shipped in the next 12 months A? B, could you also respond to my usual request for an annual meeting proxy and chance to get back to a normal reporting Company as to those aspects? Thank you.

Okay, so let me take the first question on the backlog. The announced backlog, I expect that we're going to be able to execute this backlog as revenue. In the next 12 months how much of it, somewhere between 70% and 80%, hopefully we get closer to 80%.

That's the plan. As far as the annual meeting, we are planning and continuing to execute the planning, so stay tuned. The plan is to have one.

Okay, thanks a lot.

Absolutely. Thank you very much for your support.

(Operator Instructions) Ross Taylor.

Yes, thank you. Alex, congratulations on the great quarter.

It looks like there's just a few things, more on the theater side of the business. Obviously when do you plan on getting out to meet with your shareholders and potentially meet with potential new investors?

I think, well, I think what I would like to do is I would like to get the general shareholders meeting planned out first and get it out to everyone. I don't mind setting up anything after that. I think it's a good idea.

I would agree with you. Also GTAT, do we know where the claim stands with regard to that bankruptcy settlement?

Let me turn this question, the answer over to Tom Sammons. Tom?

Yes, the GTAT we really don't have any update on this. It's still in the hands of Citi. We speak to them, in fact I spoke with them about a week ago and there's been no new update, which is basically we're in line with a number of other creditors and we're just waiting for the process to go through.

And then, what type of -- as you roll this through you've had five straight quarters where you've made money and in that period you made something in the neighborhood of $0.06 or $0.08 a share or so in aggregate. Obviously the Company with the refinancing and the substantially lower rate is seen as a viable going concern business.

Not that it doesn't need constant attention but that the crisis stage has passed. What kind of free cash flow do you see being able to generate as you continue this process of executing your strategy?

Let me give that answer to Tom to answer.

I don't have a real good answer for that right now. We have been able to generate a decent amount of cash over the last six months.

I would expect a dip in cash at some point. But then I think on average we ought to be able to build our cash balance up year over year and get the debt down at the same time.

Okay. And I would also second Walter's request for a shareholder meeting. It's been a long time.

I have to be honest, I am more than a little frustrated when I look at a stock that trades for basically the price of penny candy through most of this time not to have seen more aggressive insider buying. The Company seems viable at this stage and I think it's a good chance or it's a good idea for not only you to meet the shareholders but for the Board of Directors to get a chance to meet and talk to the shareholders.

Yes, understood, Ross. And we're planning and carefully planning this out so we don't make a mistake. But we want to hold the shareholders meeting, absolutely.

Thank you, sir.

Thank you very much.

(Operator Instructions) Richard Greulich.

Thank you. What are your capital expenditure plans over the next 12 months or so?

We're going to be working that out looking at what free cash flow we have and also balance that against what borrowing we can do.

Based on the fact that you haven't really had much in the way of CapEx in the past I assume your maintenance CapEx is pretty low. Is that correct?

Pretty low is relative, I guess. But we haven't had CapEx, that's right. And the business is staying steady, so we don't need a major infusion of capacity and capability.

Having said that, we should start making some plans on upgrades and what are we going to do next for growth. I'm not prepared to really announce a forecasted growth pattern or some sort of thing that drives the CapEx. I know I'm not answering the question directly but it's a true answer.

It sounds like three to four six months from now you will have a much better idea if you are in the planning stage now. Is that correct?

It could be.

Have you considered doing a reverse split?

Not at this time.

It might make your stock more eligible to be bought in either individual or institutional investors.

Understood.

Thank you. Good luck.

Thank you.

It appears we have no further questions at this time.

Okay, thank you very much everyone.