TechPrecision Corp (TPCS) 2024 Q2 法說會逐字稿

Greetings, and welcome to the TechPrecision Corporation second-quarter fiscal 2024 earnings call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Brett Maas, Managing Director of Hayden IR. Thank you, sir. You may begin.

Thank you. On the call today is Alex Shen, Chief Executive Officer; and Bobbie Lilley, Chief Financial Officer. Before we begin, I'd like to remind our listeners that management's remarks may contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your question.

Therefore, the company claims the protection of the Safe Harbor for forward-looking statements as contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we refer you to a more detailed discussion of risks and uncertainties in the company's financial filings with the SEC.

In addition, projections as to the company's future performance represents management's estimates as of today, November 20, 2023. 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. Please go ahead.

Thank you, Brett. Good afternoon to everyone. Thank you for joining us.

Customer confidence remains high as our consolidated backlog was $44.6 million at September 30, 2023. For the second quarter, consolidated net sales were $8 million or 6% lower when compared to net sales of $8.5 million for the same period a year ago. For the first six months of fiscal 2024, consolidated net sales were $15.3 million or 2% lower when compared to net sales of $15.6 million for the same period a year ago.

Second-quarter net sales for Stadco compared favorably with the same period a year ago. Gross profit at our Stadco subsidiary improved, reporting a loss of $9,000 versus a loss of $587,000 in the first quarter of fiscal 2024.

A less favorable project mix at Ranor dampened consolidated operating income for the second quarter. Ranor operating income was $673,000 for the quarter. Stadco operating loss was $323,000.

We expect to deliver our strong backlog over the course of the next one to three fiscal years with revenue growth and gross margin expansion. We will continue to focus on tactical execution and risk mitigation, driving both subsidiaries to fully comprehend to successfully manage and successfully meet customer expectations, enabling continuous recapture and continuous retention of customer confidence.

Customer confidence is key. We can all clearly see the positive results of this focus, evidenced by the continued high customer confidence, which enabled us to maintain a strong backlog.

We do remain highly focused on cash management, a critical piece of risk mitigation. And we continue to manage and control expenses, capital expenditures, customer advances, progress billings, and final invoicing at shipment.

I will now turn the call over to our CFO, Bobbie Lilley, to continue with the review of our quarter results. Bobbie?

Thank you, Alex. Net sales for the second quarter of fiscal year 2024 were $8 million or 6% lower when compared to the same quarter a year ago, with $4.5 million for Ranor and $3.5 million for Stadco. Cost of sales were $6.9 million or 2% higher than the prior year period, due primarily to a less favorable project mix at Ranor, offset in part by better throughput at Stadco.

Due to the higher costs, gross profit was $1 million or 41% lower compared to the same quarter a year ago. SG&A expense decreased by $200,000 or 11%, primarily due to cost reductions at Stadco. Operating loss was $597,000 compared to an operating loss of $87,000 in the same quarter a year ago.

Interest expense for the second quarter increased by $46,000 due to more borrowing under our revolver loan, higher interest rates, and higher loan cost amortization. We ended the quarter with $1.9 million outstanding under the revolver loan.

Net loss for the second quarter was $528,000 compared to net income of $390,000 the prior year. The prior year period included a onetime gain of $624,000 from an employer tax credit refund. Net sales for the first six months of fiscal year 2024 were $15.3 million or 2% lower when compared to the same period a year ago with $9 million for Ranor and $6.3 million for Stadco.

Cost of sales were $13.6 million or 4% higher than the prior year period due primarily to less favorable project mix at Ranor. Due to the higher costs, gross profit was $1.7 million or 32% lower compared to last year. SG&A expense decreased by $300,000 or 9%, primarily due to cost reductions at Stadco.

Operating loss was $1.2 million or $532,000 higher than the same quarter a year ago. Interest expense increased by $65,000 due to more borrowing under the revolver loan and higher interest rates. Loan cost amortization increased by $11,000.

Net loss for the first six months of fiscal 2024 was $1.1 million compared to a net loss of $110,000. The prior year period included a onetime gain of $624,000 from an employer tax credit refund.

Moving on to our financial position, cash provided by operating activities was $1.3 million. Cash used for capital expenditures was $2.6 million. Financing activities provided net cash of $0.9 million.

Our total debt was $7.1 million on September 30, 2023, compared to $6.1 million at the end of March 31, 2023, as we borrowed an additional $1.3 million under the revolver loan. Cash balance at March 31, 2023, was -- cash balance at September 30, 2023, was $138,000 compared to $535,000 at March 31, 2023.

Working capital was negative at September 30, 2023, as we reclassified all of our long-term debt to current because of certain debt covenant violations. We have requested a waiver from our lender.

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

Bobbie, thank you. For those on the call who may not be very familiar with our company, TechPrecision is a custom manufacturer of precision large-scale fabricated components and precision large-scale machined metal components. The components that we manufacture are customer designed.

We sell to customers in two main industry sectors: defense and precision industrial, predominantly defense. We do most of our work in industries that are highly sensitive to confidentiality, which preclude us from speaking publicly about many things that a company not operating in these fields might discuss.

As such, there are real limits as to what I can discuss and sometimes those limits change. Please understand that my saying, I am not allowed to discuss that is based on customer requirements and the environment in which we conduct business.

Even though I have read the last statement at every conference call for the last several years, we continue to get questions both written and oral or hear about individuals making statements that what I'm saying is not accurate, that it is the Board silencing me, or that I alone and making these decisions.

As I have said repeatedly over and over again, we are not the ones making these rules, not me, not the Board. The decision as to what we can say is based solely and completely on rules, rules from our clients. These are not my rules and these are not the Board's rules.

There are many things we would love to speak about, but we are restricted. It is the same for all of our direct competitors. Over the last several years, we have made great progress by performing good work and by following client instructions. That has led to about a threefold increase in stock price since the present Board took over. That is a winning formula.

As a final point, I do not see these clients changing these restrictions anytime in the near or even distant future. So please, do not expect anything to change. Where we can speak about it, we will. But we will not jeopardize our relationships with our clients and we will not jeopardize the future orders we expect to receive from them.

TechPrecision is proud and honored to serve the United States defense industry, specifically naval submarine manufacturing through our Ranor subsidiary, and also specifically military aircraft manufacturing through our Stadco subsidiary. We aim to secure and maintain enduring partnerships with our customers.

Overall, in both the Ranor and the Stadco subsidiaries, we continue to see meaningful opportunities in our defense sector as evidenced by the strength of our backlog. We are encouraged by the prospects for growing our revenue and increasing profitability in future quarters.

Operator, please open the line for questions.

(Operator Instructions) Mark Gomes, Pipeline.

Hey, gentlemen. Welcome to renewed revenue growth. Congratulations on that. Excluding the machinery issues that you had at Stadco over the past few months, which as I understand --

Mark, you're coming in a little faint.

Sure. How about this?

Much better. Thank you.

Great. Excluding the machinery issues that you had at Stadco, which, as I understand are now behind you, have you been able to deliver against your customer order expectations on a timely basis?

Yes. The quick answer and the real answer is yes. We are delivering against our customers' expectations. Absolutely.

Okay. So --?

As a matter of fact, we just got recognitions from our customers -- from several different customers for delivering 100% on time.

Fantastic. So it would be safe to say then that anything that we see in the defense sector in terms of missed expectations and submarines or what have you, are not being caused by you in any way, shape or form?

Correct.

Okay. Any reason to believe that this won't continue?

There is no reason to believe we cannot execute the same way in the future.

Okay.

The expectation should be that we will execute the same way in the future.

Okay. So then the competence that you've been exuding with regard to customer competence leads me to believe that the programs that you have been in over the past year or two, three years, there's no reason to believe that you will not continue to be a part of those programs, if not more in the future, yes?

Not so sure ever about what's in the future. You know how I love to forecast; that was sarcasm. But the expectation is we are going to keep what we have because if we deliver according to customer expectations, that's how we resecure their confidence. And by resecuring their confidence, we resecure the PO activity in the future. So I think that's a roundabout way of saying yes to your question.

I took it as such. Final question. We saw maybe a couple of million dollars of CapEx at Ranor a few months ago. Any color, commentary as to what that might have been for not specific to customers, but is that to replace old machinery, expand your capacity to do more work for customers or all of the above?

We've wandered into an area where I am being restricted on comments. So adding new machinery does not decrease capacity usually. So that's probably safe to say that we're adding capacity.

Great. That's it for me. Thank you.

Thank you. Thank you for your support.

Rob Straus, Wynnefield Capital.

Hi, Alex and Bobbie. How are you today?

Good. Thank you.

So I have a number of questions. And Bobbie, first, it's going to go to you and it's pretty specific.

On the balance sheet, there is an account called other noncurrent liability. And that went up a bunch from the fiscal year end. And I just thought you might be able to help us understand definitionally what that account includes. (multiple speakers)

Yeah. Just to help you get there, so again, it's called other non-current liability. And as of September 30, it is at $4.43 million versus the March 31st number of $2.7 million. So we can move on. But I'm just curious, definitionally, what's included in that line because it has moved a bit.

Then either for Bobbie or Alex, when we think about the CapEx that we're spending, is that CapEx self-funded? And the reason why I ask is that I think participants on this call, who are reading about the industry in general, have seen whether they'd be government grants or primes, bringing capital for infrastructure builds into companies and competitors.

I just thought I would ask because we are spending some money on CapEx. What the source of that funding is? Is it entirely self-funded by TechPrecision?

I can tell you it is not entirely funded by TechPrecision.

Okay. Good, then that means that we're getting support from other entities.

Switching over to Stadco, there's a few questions that I have. And Alex, some of them are really basic and you'll as always choose to answer what you want.

When we acquired Stadco a little over two years ago, we thought of key personnel as those individuals holding the CEO, President position as well as the COO position. I was just curious, the two individuals that were holding those positions when we acquired Stadco, are those two individuals still holding those seats and still at Stadco?

I make it a policy of not talking about the individuals at the subsidiaries.

Okay. I guess, so staying with Stadco, Stadco's integration, I think we would say is it's behind where we thought it would be. And there's some more integration to do. What kind of color or explanation can you give us to better understand the challenges that you are facing with that subsidiary?

So let me first characterize this thing properly. So Stadco is a turnaround, not so much an integration at all. It's a turnaround. Okay. So let's -- I'd prefer to use that terminology, please, if you don't mind.

Sure.

Okay. So being a turnaround, what we can see right now is we need more revenue strength from Stadco. That's the key point. With more revenue strength, we can get over our hump. How to get there? Well, it's a little bit complicated as far as the dams.

The most important thing, how we get there is back to customer confidence. We need to preserve the customer confidence by recapturing it every single day, moving forward every single week, every single month, every single quarter. So that these customers of Stadco continue to give us purchase orders that will reestablish our backlog that we ship out and grow the backlog. So I think we're doing that. What we just need to do more is push that same confidence into moving out more revenue within each quarter.

We had some setbacks last -- the first quarter of this fiscal year with our equipment problems. That is behind us. There are some certain things that -- well, the machines aren't breaking down, but that doesn't say that everything's all fixed. There's still ongoing daily maintenance problems. But that's not really the key problem anymore.

The problems that have occurred in the first quarter of this fiscal year, those are fixed. So that just shows the type of things that in the turnaround, what unforecasted, unexpected things can happen. Did we expect that a number of pieces of equipment, a number of assets would have problems during the same quarter? No. But in the nature of a turnaround, those are the things that happen.

When you answered earlier in this call about delivering against customer expectations and stating that 100% of your deliveries are on time and that you are winning awards or positive feedback from customers, was that commentary relevant for both Ranor and Stadco? Or were you referring to only Ranor as it related to those specific comments?

Our delivery meets the expectations of the customers for both subsidiaries.

Okay, great. One of the areas that you seem to make good progress in is reducing costs at Stadco.

That's what we're reporting this quarter.

That's right, which occurred during the quarter ending September. Could you just give us more color on where you saw opportunities and whether or not you see that as a completed process or an ongoing process?

It's always an ongoing process. I would like to remind all of our listeners that even though we track quarter to quarter as required by the SEC, really, our business spans more than one quarter. And our manufacturing cycles and the cadences span much more than one year.

So is it ongoing? Absolutely. And let's bear in mind, the business is lumpy. So going from quarter-to-quarter analysis is probably, in my opinion, shortsighted and doesn't project the whole entire picture.

Yeah. Understood. Going back to Bobbie. Bobbie, do you have a better explanation of the account definition or we could try to do that offline if you prefer?

No, we'll do it online.

It is contract liability, so deferred revenue is what's in that account in that area. So we've -- yeah, so it has increased.

Yeah, okay. Now regarding backlog, we're reporting here $44.6 million. I'm looking at that against the prior quarter ending June at about $46 million. The year-ago period, it was $49 million.

And Alex, I think you said something that's important that we understand this business is lumpy. I think that I'd appreciate any incremental thoughts on whether or not -- look, we've been in this mid-40s range for the better part of 12 to 18 months now. Maybe this is where TechPrecision is. And the expectation shouldn't be something much larger. But I think with what we see going on in the industry, there's reason to believe at least that backlog for TechPrecision across the board can get quite a bit larger.

Do you have that same enthusiasm? Or what is your viewpoint on that because it's -- we're tracking this backlog number for the last 12 to 18 months, and it feels more stagnant than anything else.

I would say that this is a big win because in the midst of a turnaround, we are able to preserve the level of backlog, basically demonstrating the level of customer confidence and the level of meeting performance expectations by the two subsidiaries. So I would consider this a big win.

Can it grow more? Probably more yes than no. I wouldn't characterize it as being stagnant. I would characterize it as winning every day. We're in the 40s.

Last question, I guess. As it relates to Stadco, some time ago, and I think it was slightly after we acquired the business, two customers specifically were mentioned on the call.

And those are widely known, which is Sikorsky, which is tied to the CH-53K, and a Boeing tied to the F-15EX fighter jet. Those two relationships are every bit where today -- where they were back then. Is that correct?

I will speak to the military heavy-lift helicopter program. That relationship remains strong and we recapture the customer confidence on a daily basis.

And no comment regarding the Boeing F-15EX fighter jet relationship?

You do know that I do -- I shy away from specific customers. So I will shy away from that. But overall, I can give all our listeners the same information that across the board for our key customers, we are not losing any confidence in any one of them.

Okay, great.

They are not losing any confidence in us either. So I think that should answer the question.

Good. Last question, Bobbie. One question regarding the press release, which discussed a debt covenant violation, often these are manageable with your lender.

I just thought I'd ask you your perspective. Number one, what is our remaining availability? And you could give it as of the end of the quarter or as of today, so we know what that looks like. And then is there any comment that you can make as it relates to your thoughts on curing violation?

The availability as of the end of September is over $2 million. And as far as the covenant being a lumpy business, we're going to have quarters that are up and down. And we work with our lender to wave whatever we need to and move forward.

Okay. Thank you for answering my questions. I'll allow someone else to get in. Thank you.

Thank you.

Kris Tuttle, Caterpillar Investments.

Great. Thanks for the update and for taking my question. We already have delved into quite a few things. I did want to just ask a little bit more about the backlog. You talked about satisfying it over the next year, year and a half. And my question is just working with your customers who may want to place additional orders with you, are you able to give them the kind of delivery times within their expectations for the lead times they have for their products? In other words, do you have capacity to still accept additional orders for them and satisfy them in the timeframes that are acceptable to them?

That is kind of a tricky question, isn't it?

I don't -- I didn't mean it to be.

Okay. Well, I'm just trying to make sure that we all understand each other and also our listeners all understand the same thing. We're interested in maintaining 100% or close to 100% on-time delivery with our customers. That is the expectation that we want to meet, so that we can continue to secure confidence and through the confidence, new orders.

So if a customer, I guess, tries to put in an order that will disrupt the defense industry, that would not be a good order. And I think our customers are very aligned with our available capacity and capabilities. So they'll probably try to work with us to avoid such a scenario.

Okay. And at the same time, if they want to use you a little bit more for some of their programs, there's some room for them to work with you to do that.

I can always figure something out. But again, this is not a singular transaction. This is a relationship that spanned decades. So really if a customer would do such a thing as to try to force us into not meeting expectations any longer in the defense industry, that would be -- they would not be operating in a manner that they should be. It shouldn't happen that way.

Got it. Got it. Well, I appreciate that additional color about how the business works. So thank you very much for that, and congratulations again.

Thank you.

Thank you. (Operator Instructions) Greg Schlatter, private investor.

Yeah. Alex, thanks for taking my call. I just have a real simple question. You'd speak about delivering on your customer expectations on a daily basis. Yet over the past 10 years, you've not really delivered on any shareholder expectations in the sense that you'd -- managing a profit and an earnings per share.

Do you think that will ever occur as you build out and talk about your great pipeline being built out? Are you pricing stuff at a profit? I know it takes one or two years to deliver it, but what were you doing one or two years ago? I'm just a little curious on how long shareholders are going to go without seeing any type of positive EPS.

Sir, I don't think I have an answer to your question. I don't know how long. I don't really understand how to answer the question. I do understand that we need to maintain our backlog. I do understand that we need to maintain our customer confidence. And I do understand that we are meeting customer expectations.

Thank you. Ross Taylor, ARS Investment Partners.

Thank you. Real quick. With regard to Ranor, you've come off what were some pretty strong revenue and margin -- operating margin numbers a couple of quarters ago. In each of the last two quarters, you've cited mix. Could you talk to us about whether that mix is the result of old contracts? Is it the result of first items being worked on or is it other issues? And when do we see the mix getting more favorable or getting us back to where we were, which is mid to high 30s in operating margin?

Well, the mix that we're referring to is the profitability mix. That's different with each type of part number or type of part numbers in the category. It's a different set of part numbers that have less profitability that we are -- seem to have -- the timing is collapsing into the same reporting quarter, Ross. So when you have things with high profit all collapsing in the same quarter, profitability goes up. If a large number of them have relatively lower profitability, yet still profitable, collapse in the same quarter, profitability will decrease.

When we look at the operating profit margin for Ranor, back when you had your strong quarter a couple of quarters ago, you were asked if you thought that was a sustainable number or it was kind of a one-off. And you did not indicate it was a one-off number. Should we expect a sustainable number over time? Because I understand the business is lumpy. Should we expect that number to be in that kind of mid to high 30s over time as opposed to what we've seen in the last couple of quarters?

Well, certainly, I aim for higher. I can't really control some of the timing of when these occur.

But generally overall, and forgetting the timing issue, if we look at this thing and we say, okay, fine, the life of these programs -- because these are long life programs. The two you're working for in Ranor are programs that run 10 to 20 years by build. When we were looking back at that, should we expect to see -- if we add up the entire, the revenue base out of Ranor, should we see operating margin in that mid to mid-upper 30s range that we were achieving before the last couple of quarters? Or do you expect that low 30s or lower is going to be the sustainable number? Your previous comments indicated you thought you could do mid-upper 30s and sustain it.

Unless we start hitting these pockets of resistance, which collapse into the -- so if we do a quarter-by-quarter analysis, I think it's really difficult because --

Yeah, I'm trying to get away from that. I'm trying to look at a program line. Yeah, I'm trying to look at program line.

The advent of COVID spiked a lot of different costs. And I think a lot of us, including Ranor and Stadco -- but we're talking about Ranor -- I think we're looking at that and experiencing different types of cost increases and impacts. Some of the impacts also don't just come from how something is quoted to be a profitable margin and what that percent margin is. Some of it is actually affected by timing of uncontrollable factors such as raw materials as well as timing of customer furnished material and supply chain delays in both those things.

So when we have these types of hiccups, operationally, what happens is some of the labor weights. So when we have under-absorbed -- relatively under absorbed labor because of hiccups, not so much because profitability calculations or expectations are not being met. They're not being met, not because the job is not profitably quoted. They're being met because there are different things that the inputs are lumpy to me. So that causes a ripple effect. I hope I'm explaining myself properly.

No, I understand. So basically, what you're saying is that you are operating in some ways at an inefficient level because you're not running enough business through. A couple of quarters ago, you were running more business through. It was higher margin programs. So therefore, you operated at a less inefficient level than you are now. But that what's happening here is if I can -- if I'm summarizing you correctly is that we're in a period where you are stuck with somewhat inefficient operational levels.

So efficiency, I usually equate with things like mass production, but we do things one at a time. So I try to avoid using these mass production-type terminologies and stick with what I know. What I do know is when there's hiccups in the inputs, there's hiccups on the outputs, and those kind of translate.

The smooth and steady is just not the business model. Lumpy and lumpier seems to be the business model. And what I tried to do is smack down the lumps and make it better. We succeeded very well before, and we want to succeed very well all the time.

Is there any reason why you cannot begin to succeed very well, particularly given the ramp-up in the programs that we believe you are involved with?

So I think the on inputs, especially supply chain problems that cause input hiccups, are beyond my control is the problem.

Okay. Let's move on to a couple of things. With regard to Stadco, you're involved in -- that we're aware of -- you are involved in two programs for two primes. One is Lockheed Martin Sikorsky with a heavy-lift helicopter. One is Boeing with a gen four plus advanced air defense strike fighter. Both of those programs are expected to ramp aggressively in the next year to two years. They're looking at going from low-single-digit production to north of 20 units a year production in both cases.

Since you have talked about being basically a artisanal shop where you build things one at a time, one would expect that you would see a meaningful ramp, meaning parabolic I think in the F-15EX, right? As they call it, a Viking launch of the business coming from those two programs. Am I wrong in my interpretation of that?

I think we all want you to be right.

No, it's a simple question. You know what you're involved with. The Board knows what you're involved with. I'm pretty confident what you're involved with, and I'm just saying -- so you want me to be right, but do you have any reason why I'm wrong? Just fundamentally. Forget the idea that the sun could come up in the west or lemmings could emerge from the sea. Just generally business-wise here, you are sitting on the cusp of what appears to be in that business a major ramp, major ramp. Really the reason why you bought that business and why you spent the last two years turning it around.

I totally agree with you.

Okay. Cool. Do you have any problem? Do you need any CapEx in Stadco to meet the expected build rates? Or do you have that capability today to do what you need to do, given that we're looking out maybe literally in the next 12 to 24 months of seeing these ramps take off?

As we are looking at meeting customer demand, we are meeting customer demand. As we are looking to forecast or -- you know how I don't forecast. I only believe what I can see. So some of these things that come out of our customers don't materialize themselves into actually orders that have due dates that are perhaps reflecting of these huge ramps in the short term. So in that vein, we do not see a problem meeting customer demand -- period -- whether it's now, whether it's six months from now and then further beyond that. (multiple speakers) So I hope that answers the CapEx question.

Right. So you don't need to do CapEx. We're looking at something where what you -- we believe in Stadco you're building -- I believe you're building our key structural components for each of those programs that you're involved with. It's hard to build either airframe without your product. So one would assume that as it ramps, unless they have scores of these things sitting someplace in a warehouse, you're going to see that business. That's more of a comment that you're free to agree or disagree.

Since you're not disagreeing, I'm going to push on to one thing. You've talked about the idea you're doing turnarounds. And you did a turnaround at Ranor. And that really caught fire and two quarters ago, really was in place. It's kind of -- for a variety of reasons, stumbled a little bit the last couple of quarters. But from what I'm hearing you say, that's going to self-correct.

The caller who basically asked about profitability, I have to say I hate your answer, Alex, because in the end, we know that the business needs to be profitable. It needs to be self-funding. It needs to be doing all of that. You know that. I know that. Your Board knows that. And that is what the goal is. And I'm confident that if you cannot achieve that, that the Board will sell this company to someone who can achieve it with the business. And I know that you are a good operator, so you will achieve that.

But the question really then is -- and I think the question that was being asked is there's the third turnaround, which is the company itself from a shareholder perspective. And while you have done well from the beginning, the stock has really kind of run out of gas -- a little bit like your backlog. It would strike me as -- this company needs -- you uplisted.

You can see the frustration. All that one has to do is look at the votes on the last election for the directors and the like. I've rarely seen that type of shareholder commentary when there was no organized effort to get a vote out against it. It's just a level of frustration that people have.

Do you see -- or do you have the ability -- does this company -- as the Board focus on not just kind of -- are struggling to get this thing just right or are we looking forward enough to say we know we need to get this profitable? Because going back to your Chairman's comment years ago that he foresaw the endgame here was the company being sold. And I'm not quite sure he anticipated it would be this many years before it was sold.

But I do think you need to start focusing on profitability. I think you need to find a way to tell the story. I would recommend you listen to the Graham calls because they don't say a lot but they say it in the way that people love. They really don't see a lot. So maybe over the holiday, you can listen to a few of those calls and figure out, is there a way we can tell this story that can reach a broader audience.

We see we have a new institutional investor, who's a large investor. It would be nice to have more of those people involved to help soak up stock and carry this idea forward, and quite honestly, help to springboard the investment to higher levels.

Understood.

Okay?

Yes, understood.

Thank you. Thank you, sir.

Thank you.

Thank you. Richard Greulich, REG Capital Advisors.

Thank you. I want to go back to the CapEx question.

Excuse me, I can't really hear. It's very muffled.

Is this better? Hello?

Yes.

Okay. So I wanted to go back to the CapEx question. My understanding from the prior dialogue was that another entity or entities are underwriting some of the cap expenditures. But how does that show up if it does on the financial statements then?

Say that again? The CapEx --

If what TechPrecision stands on its capital expenditures is augmented by other capital equipment being purchased by another entity or entities. So does that show up in there in the financial statement or no?

Yes, the total CapEx is all inclusive of any funding.

Okay. And so how does that get offset in terms of how I look at the financial statements then? So if for example, I guess, in six months --

We are buying (multiple speakers) the CapEx is expended by the company.

Okay.

So the company spends the money, right? That shows up, right?

Right. So that shows up in the cash flow analysis, so of $2.6 million for the six months, let's say. So where is the inflow of funds then that -- from other outside entities?

That would be on a PO.

I'm sorry. On what?

purchase order.

Okay. I'm going to think about that. I'm not sure I fully understand how that ends up. But in other words, I guess is the purchase order amount in excess to include that capital spending?

I'm sorry. Could you please say that again one more time? Excuse us.

So if the purchase order is to purchase X amount of dollars for this piece, and is that then increased to include the capital spending that's included in that?

The capital -- the offset of the CapEx is part of the contract liability I talked about that's in the other non-current liabilities. And it gets offset against depreciation as it amortizes.

Okay. If it's -- supply chain interruptions have been causing a problem with the more steady flow and usage of labor, how can you take that into account when you enter into pricing with a purchase order?

How do you take into account something that's like a interruption?

Correct. In other words, you said that -- in here, I'm talking --

It's pretty difficult, Richard, to take into account directly and quote to a customer and saying, in case of interruption, I'm going to charge you this much more.

I understand. And you're hearing a question from somebody who has never done any manufacturing administration or management. But if you think -- do you think that supply chain interruptions like that will continue on?

We're delving into an area of -- so we were talking about supply chain interruptions with our customer furnished material, right?

Correct. Correct. With your supplier furnished?

With my customer furnished material, which in this case, the supply chain is the actual customer that gave me the PO to begin with.

Got it. Okay.

So it's kind of puts me in a real bind. I'm jammed up to between them and them.

Right, okay. I appreciate that clarification. Is there any way you can go back and renegotiate or recompense yourself given it wasn't your fault?

There are certain limits. Until I understand the magnitude and until the job's really done, I won't understand the magnitude because much of our manufacturing spans quarters and sometimes spans two or three years. So to answer your question correctly, do we go back to the customer for things that are not my fault and the things that perhaps could be the customer's fault? The quick answer is absolutely yes. Yes.

But it sounds like you don't do it on a contemporaneous basis.

We do it every day. We do it in a way that the -- so I can get a yes from them. Otherwise, if I can't give them an answer on, well, how much is it going to be, I don't know until I spend it all.

Got it.

Yeah. It's difficult to give them a forecast and then change it later and say, I need a little bit more. Well, what [does it address]?

Right.

There's humans on the other side that also have bosses that need to sign off on, okay, show us evidence of the extra expenditure. Is it all done yet? If it's not done yet, then wait or something. What can I get in today though? These negotiations happen every day.

So from an outsider looking at that process, It would seem to -- I would conclude then that what I'm seeing is the worst possible case of that issue -- getting no recompense for that. That's how it's flowed through the financial statements as of now. Would that be correct?

No. It's a mix of all kinds of stuff.

Okay.

Because it's not just one contract we're talking about, right? It's an aggregate of the quarter. The quarter wasn't spent on making one part.

Okay. I want to shift just real quickly to one other thing. While you've always stated that defense is obviously the major part of the company's business, you still have precision machinery as part of another (multiple speakers) I'm sorry, industrial. Are there other opportunities there or revenue growth over the next year to year and a half?

So that's a little bit of a trick question. But the answer is yes, there's growth, but we're predominantly in defense.

Are you pursuing opportunities in the precision industrial at this point or no?

Opportunistically, yes. But we are pursuing more opportunities in defense because it's so much more and so much more reliable with decades, decades of reliable PO capture opportunities -- purchase order capture opportunities. Whereas precision industrial is, if you pursue it, how long is it going to last?

And if it's not on a submarine or a heavy-lift chopper, what if the need goes away? And there seems to be a program of record that's authorized by Congress under the seal of the United States of America. How many of those precision industrial opportunities can turn into a problem for us?

Okay. I appreciate your work, and I appreciate you taking the questions.

Thank you.

Thank you. Mark Gomes, Pipeline.

Thank you. First, just want to echo Ross's commentary regarding the GHM, the Graham earnings calls and how they handle that. It would be a good, I think, model -- just FYI. I know it varies from program to program. But in general, if you look at the aggregate, do the parts you make tend to be needed closer to the front end or the back end of the final assembly process of the various programs if you looked at an average across the aggregate?

Average doesn't really work.

Okay. You have a sense of the spirit of my question, right?

Well, I sense it. But we make the components; we don't build the boats. We make the components; we don't build the helicopters.

Right. But if we look at helicopters as an example, right? If I asked that question specific to helicopters, the question would be some people -- some companies would be getting orders for helicopter number seven at a specific time, and you would be getting your orders for that same helicopter at a different specific time, depending on when those parts are needed for a final assembly. And I'm just wondering if on average, your parts that you make tend to be at the front or back end of that process.

So I think I'm trying to answer the question Mark, in a way that makes sense. Because we are far away from the build cycle of the helicopter or the build cycle of the submarine -- our orders are for components. So I think what would happen is they order the components. I don't really know as far as front end or back end or how to really connect it to the customers' actual schedules because it varies.

Got you. Okay. Now, of course, I think it's safe to say that you tried to price out your work so that you could get to those 30%-plus gross margins we've talked about on Stadco and Ranor. Yeah. I assume that's still the plan?

I price in order to maintain margins. I'm going to do my best.

Okay. So the follow-up to that is, would you say that the processes that you are continuously putting in place to improve the operation, combined with the current environment as opposed to the one that we went through during COVID -- and I'm sure the echoes are still there -- but is the current environment and your ongoing process improvement initiatives -- are we at this place where all of that is more conducive to fewer hiccups going forward?

I think we all underestimate the COVID impacts that are still being felt across all industries. I don't think that we've reached steady state as far as expectations that resembles something pre-COVID that's more stable. (multiple speakers)

But we're moving in that direction, right? Is it safe to say that the further we get away from COVID, the closer we get to reaching that normal state?

I think it really depends on the individual companies and their operators. The overall, it's -- the impact are certainly felt. We are doing -- we are taking certain measures in each subsidiary, some similar, some different to location and region to further mitigate these impacts. I would like to think that we're better than average.

Thank you.

Thank you. That does conclude our question-and-answer session. I will now turn the call over to TechPrecision management team for closing remarks.

Thank you, everyone. Please have a nice day.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.