Good day, ladies and gentlemen, and welcome to the TechPrecision Second Quarter 2018 Earnings Call. All lines have been placed on a listen-only mode. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Brett Maas of Hayden IR. Sir, the floor is yours.

Thank you. On the call today is Alex Shen, Chief Executive Officer; and Tom Sammons, Chief Financial Officer. The call is also being simulcast on the company's website, www.techprecision.com. Before we begin, I'd like to remind our listeners that management's remarks may contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements as contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we refer you to a more detailed discussion of risks and uncertainties in the company's financial filings with the SEC. In addition, projections as to the company's future performance represents management's estimates as of today, November 13, 2017. 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. First, I will share something from Rich McGowan, our Chairman of our Board, who stated, the board is very aware of the significant drag on earnings caused by the costs of being a public company at our revenue level. We have been and continue to actively investigate and pursue all ways to improve this. There will be no further comments at this time. Getting back to the earnings call. We continue to benefit from our consistent, sharp focus -- sharp focus on productivity initiatives and sharp focus on revenue stream from key customers. The second quarter of fiscal year 2018 was another profitable quarter with consistent operational and financial performance. Net sales were $4.6 million, an increase of 26% when compared to the same quarter a year ago. Income before income taxes was $614,000 or 10% higher than the same quarter a year ago. And net income was $368,000 or $0.01 per share in the second quarter of fiscal 2018. We continue to move forward to replenish backlog by maintaining our focus, targeting defense, nuclear and precision industrial markets. Now, I'll turn the call over to Tom Sammons to tell us more about our second quarter financial results. Tom?

Thank you, Alex. As Alex noted, net sales for the second quarter of fiscal 2018 were $4.6 million or $933,000 and 26% higher when compared to the same quarter a year ago. Net sales in our defense market increased by $0.5 million when compared to the same quarter a year ago, primarily on higher shipments of new product components to one of our largest defense customers. Net sales in our energy market increased by $0.6 million when compared to the same quarter last year, primarily on higher shipment volume of nuclear plant components. Gross profit was $1.4 million, a decrease of $41,000 when compared to the same quarter of fiscal 2017, small decrease can be attributed to higher unabsorbed overhead cost in connection with the time lag between contract deliveries and the startup scheduled of new projects. Income before income taxes was $614,000, a 10% increase over the same quarter a year ago. Income tax expense was $246,000 for the second quarter of fiscal 2018 and was primarily a non-cash expense. Cash paid for income taxes in the second quarter of fiscal 2018 was $20,000. Income tax expense is provided against interim results based on our estimated annual effective tax rate. Income tax expense was significantly lower for the quarter ended September 30, 2016, due to the utilization of net operating losses and the associated reduction in the valuation allowance, which have been provided for this deferred tax asset. Our net income for the quarter was approximately $368,000, $0.01 per share basic and fully diluted for the quarter ended September 30, 2017, as compared to a net income of $546,000 or $0.02 per share basic and fully diluted for the quarter ended September 30, 2016. Second quarter fiscal 2018 earnings per share is based on an average weighted share count of approximately 28.8 million and 29.7 million for basic and fully diluted shares, respectively. Turning to the balance sheet, we finished the quarter with $2.5 million in cash at September 30, 2017. Our working capital increased by $688,000 to $5.7 million at September 30, 2017 compared to $5.0 million at March 31, 2017. Cash flow provided by operations was approximately $542,000 in the first six months of fiscal 2018. In addition, we used approximately $800,000 of cash to purchase new machinery and equipment that was placed into service during the first six months of fiscal 2018. Our backlog at October 31, 2017, was $11 million compared to $15.8 million at March 31, 2017. We continue to work to replenish our backlog, focusing on new business contracts with our core customers in the defense, aerospace, nuclear and precision industrial markets. With that, I will now turn the call back over to Alex. Alex?

Tom, thank you. 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 and know-how in custom, large-scale, high-precision fabrication and high-precision machining to be a valued and high-quality supplier. We continue to see meaningful opportunities in the defense sector, and we'll pursue contracts in the aerospace, nuclear and healthcare sectors. I would like to share some publicly available information at this time, relevant to the meaningful opportunities in the defense industry. The U.S. Navy has awarded a $5.1 billion cost-plus, fixed-fee contract for the integrated product and process development design completion for the lead Columbia-class ballistic missile submarine. This contract also includes component and technology development; missile tube module and reactor compartment; bulkhead prototyping and manufacturing efforts; and United Kingdom strategic weapon support system kit manufacturing for the Columbia-class ballistic missile submarines. We have invested approximately $1.6 million in new machinery and equipment through fiscal years 2017 and 2018, and we will maintain our focus on the defense, nuclear and precision industrial markets as we replenish our backlog. We have tentatively scheduled our annual meeting of stockholders in September 2018 to better align the meeting with the end of our fiscal year. The exact date will be forthcoming. I would now like to open up the call for Q&A.

[Operator Instructions] Our first question comes from Ross Taylor with ARS Investment. Please state your question.

Thank you. And, Alex, you've done a great job of stabilizing and turning this business into something that's now consistently profitable. Although only somewhat profitable, what can be done to drive the profit level higher ex-growing the top-line meaningfully?

I think when we grow the top-line more, we will be able to see more profitability, because the absorption will be taken care of. So, currently, you're right, we're stable. We're making a little bit of profit. As we increase top-line more, more should drop to the bottom-line, because the absorption will -- have been taken care of already.

Okay. And if you look -- your backlog dropped over the recent period. Can you talk about what the bidding environment looks like? Are there -- are you seeing substantial orders -- do you have substantial bids out at this point in time? Are we in a bit of a time lag at some point because of what's going on in Washington or other factors?

Well, so some of this information is not for public consumption yet. What I can tell you is there is a bit of a time lag in the funding profiles that we are encountering with our primes. It's not so much related to Washington itself. It's funding appropriations from our primes. That's why the time lag.

Okay, and...

Hold on, Ross, so -- and the bidding environment that you were asking about, the bidding environment is quite strong at the moment.

Meaning that you're -- you have a -- you're actively working a wide array of bids.

Wider than we have experienced in the past.

Okay. That's very good news. And, obviously you were very confident about that because of the investment of $1.6 million into equipment and the like over the last few quarters. What should we expect to be spent on equipment and plant and the like over the next -- over the balance of this fiscal year?

That's a good question. I don't know yet, because I'd like to have -- I'd like to maintain the amount of cash and not spend too much of it. So that would depend on a couple of factors. One, is how comfortable are we with less of a cash cushion. We need the cash to do several things, including contracts that will require us to buy material on our dime versus buying material and getting milestone payments. So that was another factor that factors in. The -- couple of decades our older machines that we have as we experience more downtime and refurbish requirements, some of it will require some cash in order to relay out our machines and overhaul them more extensively. That's another factor. I can't answer your question very well, because I just don't know all the ins and outs yet.

Yes, there are a lot of moving parts, I understand.

Yes, there are. But it won't be zero. There is something.

And what, at this point, is the aggregate level of debt you would cut, say, a $2.5 million in cash, but have not yet seen a Q, so I haven't seen what the debt is.

Let me turn that over to Tom Sammons for a minute.

Yes. Our total debt is about $4.6 million at the end of September.

Okay. So basically, you guys have done an excellent job. You've been able to -- you have about $2 million in net debt. You've spent a $1.6 million or so into CapEx, after having started for -- under the previous management team and leadership team for a long time. So you basically -- seems like you're pretty confident about the way the business is developing. Your initial comment, obviously, you said you won't comment more but having been around the block, it indicates that I would assume that it would be safe to assume that you guys have hired bankers to explore what can be done, what options you have for the company as well as the ability to reduce public company costs, which unfortunate, the price of being public is -- rather, what you figure it's $1.5 million, $2 million a year?

That's too much Ross. I'd say we're below that.

Meaningfully below that or slightly below that?

No. the last time we talked it was like $1 million, $1.5 million kind of numbers you're being bandied about. So I think we were...

We have worked on reducing that cost. So I would expect it's below $1 million, around $1 million or a little below.

Again, it depends. That's not something that's a straight-line equation.

Right. Well, while that seems like it's very clear that you have a lot of opportunities, but you're in a tough place being a small company in a public marketplace. So we'll eagerly await the developments that the Board -- as the Board pursues its options and strategies, and I'll pass it on to another question or should there be one.

Ross, thank you for your support.

You’re welcome. Thank you, sir.

Yes, sir.

Our next question comes from John Hardeson. Please state your question.

Hi, Alex. First I'd like to congratulate you for your 10th quarter in a row of profitability, which you are to be commended and that brings me to my question. How do I get you nominated to the Board of Directors?

Well, thank you, John, for the compliment. I don't know how I get nominated to the Board of Directors. That's not in my purview. That would be a board decision.

Well, if you can find out, I would like to hear back from you, because if there's something I can do to push that forward, I think you're doing the heavy lifting and I'd like to see you on the board.

Understood. We will come back to you.

Okay. Next question, which goes back to what Ross asked, if your bidding is up, what percent of bids -- say you make 10 bids? What percent does the company typically receive?

I think that totally depends on each situation, sir. It's not something that's easily...

About for defense?

Well, again, it really depends on which piece it is.

Okay. And there's not any average overall for the company, bid 10, you're awarded 3?

That would be a mistake to try to lump it all together that way because each situation is quite different. They're very specific. And they're also time-bound specific. There's specifics inside the specifics. How it fits into the -- how the timing fits into the capacity available in that timing. There is delivery requirements that come into play as well. So I'm not trying to dodge the question. It's just every single one of these is specific. So it's not a law of averages. I understand that, if I bid more, I might get more, but I need to be bidding on the right things that fit. And sometimes the same thing that fit last year doesn't fit this year. I'm sorry to be not answering it very well, but it depends.

Are the increased bids for defense?

Not only for defense. No, sir. The increased bids are in the three sectors that we are aiming at: defense, nuclear energy and precision industrial, all three.

Okay. Anyway Alex, excellent job and I will pass it on to the next caller.

Thank you, John.

Our next question comes from Jim Konig. Please state your question.

Hi, guys. Just a follow-up on a couple of questions that you already had, Alex. I second the motion that you should be on the Board. So anything I can do to help, I would do that. The next question I got, Alex, are you still planning some kind of investor meeting?

I am. The answer is, yes. I just don't know when yet.

You think in the near future? Or...

I think we need to pick the venue, and I don't think it'll -- well, I guess, if I was asked for my opinion, I think it'll be before the next shareholders meeting. That's what I would think. But I would need to check.

Okay. I think -- I believe it would be helpful. So anything you can do to expedite it would be great. So follow-up on one of the other questions. When you bid a job, how -- typically, how many competitors you end up bidding against?

Zero to five.

So there is a limited number and, in some cases, you guys could sole-source it?

Sole-source, those particular words designate a particular number of requirements. So I wouldn't categorize it using those particular words because those trigger specific requirements.

I understand that, but I mean in some cases, you guys...

The sole bidder, the only bidder, may be us, was the zero.

Okay. All right. I understand now. And the last question, I ran into a site that's called USAspending.gov. And Ranor appears on that and there's contracts listed. And I'm having a hard time understanding what that means.

I actually went on that website together with Tom Sammons and separately. And we believe that that is not a website to be believed in any way, shape or form. Their information is incorrect.

Okay, that's helpful. Because I couldn't make heads or tails of it except there are numbers on it, they get repeated constantly, which makes no sense to me but...

Well, it makes no sense to us as well. It's nonsense.

Okay, that’s very helpful. Again congratulation guys, that’s all I got, right now.

Yes, sir. Thank you very much.

You’re welcome.

Our next question comes from Michael Potter with Monarch Capital. Please state your question.

Hey, guys. Another solid quarter. Alex, can you give us a little bit more color on our three major segments, defense, nuclear and industrial on a comp basis, where we saw the growth and perhaps where we saw the decline on a quarter-to-quarter basis?

On a quarter-to-quarter basis?

Well, Q2 versus Q2 last year, Q2 '17 versus Q2 '16 -- I'm sorry, '18.

This is Tom. The defense industry was up $0.5 million and nuclear was up $0.6 million and precision industrial was down $0.2 million.

Okay. So defense was up $0.5 million, quarter-to-quarter, nuclear was up $600,000 and industrial was down $200,000.

Correct.

Okay. And what about in regards to backlog?

Backlog from a year ago?

Well, just so we can get a sense of, I guess, where the hurdle is or where the sticking point is, if we compare backlog at the end of Q2 versus, let's say, the end of Q1 or the beginning of the year. Where we're seeing the strength in order flow. Where we're seeing a little bit of the delay.

I think the analysis that you're attempting to do sir, is different from the -- will be highly affected by the lumpiness of the business.

Okay. When we use both and when we use current, where the current backlog is, its trend, and maybe you can give us some more color, then, on the pipeline as well. Because the pipeline will give us a better indication of where that lumpiness is.

So, currently we don't make available publicly our pipeline.

Okay. So we can't -- we don't really get a good sense of, I guess, the -- I guess, where the strength in our end markets. Right?

So what I attempt to do is give you the strength in our end markets by telling you more color, for example, on the $5.1 billion contract awarded by the U.S. Navy for the lead volt and 12 volts for Columbia class; that is a strength.

Sure. And has that started? When was that awarded?

It's publicly available. I'm not sure about the exact date when it was available -- when it was actually awarded, approximately September.

So approximately -- so the month of September. And when do you anticipate that will start flowing down to the, I guess, sub -- Tier 2, Tier 3 sub-primes?

Well, that is one contract of several that has already been awarded for Columbia class.

No, I understand that. When do you think that we will feel the effects of that award?

Of that specific award only or all the awards combined? I'm trying to answer your question without devolving too much insider information. So the public sector has information on Columbia class awards up-to-date, and I'm simply giving the more up-to-date information from September of the $5.1 billion award that was awarded by the U.S. Navy. Columbia class has continued to fund awards of $1 billion ranges. And we also have already felt the effects of those awards. So this is simply a strengthening of what we have been experiencing. So your question was on strength. So I've given you the answer on strength. It's $5 billion now.

So it's $5 billion and it's for additional how many boats?

This is only for the one lead boat.

One lead boat, okay. So it's $5 billion for this one lead boat, okay. And that was awarded to, I'm assuming was electric boat?

I don't talk about customers. This is publicly available. So if you'd like to, please take a look when you get a chance. And I will definitely give you more detail.

Got it. One other thing, I tried to go into our website, and it seems to be out of date. Is there a particular reason why we don't have current information available to the shareholders on the website?

The website has been slightly been modified, and we will continue to modify it and get it up-to-date. Our focus has not been on the website, because the website does not secure us business and does not contribute to our profits. Our focus is on recovering the company and completely and totally maintaining our recovery and not give an inch on our recovery.

So by having an up-to-date website, that would -- you'd be giving an inch on the recovery?

I did not say that.

Exactly. So do me a favor, look into it, it's part of running a public company unfortunately, and it's also part of communicating with the owners of the company, the shareholders.

Let me use this form and make some excuses for myself and the rest of the company. The website is being steadily, but slowly updated. We hope for some patience as we work through that.

Okay. I'm sure in the next month or two, that could possibly get up and running.

I do not have that expectation of a month or two. That will not happen. I don't intend to lie, and I don't intend to give false impressions.

Right. All right. So it's not going to happen?

It will happen. It will happen slowly, but surely.

Got it. Okay, alright I will get back in the queue. Thanks.

Thank you.

Our next question comes from Ross Taylor. Please state your question.

Hey. Alex, can you -- you guys qualify as a small business from the Pentagon standpoint?

From the government standpoint? Yes, we do.

Okay. And so in any contract, there are obviously benefits for a major contractor to make use of small business enterprises and the like. So I would assume that that helps you in your competitive position.

It helps us when it helps us. And sometimes we're bidding right up against other small business.

Right, right. In looking at year-to-date, you've reported two quarters; you've beaten last year's revenue numbers by a little over $2 million. That puts you on a run rate to have, even if you don't -- if you perform, the next two quarters are only flat with what they were a year ago. You'd be on a run rate to have your best quarter since-- best year since 2014. Is there any reason to suspect that you cannot continue to grow year-over-year the top-line of this company?

Well, that would cause me to give you a forecast.

No, it would cause you to give me a reason why you weren't able to continue your growth. When I ask you to tell me what you're going to generate, I'm asking for you to say -- should I expect you to continue to grow this business. You've done a great job this year. So far this year, you've put, as you said over $2 million plus on a $10 million -- on an old $8 million base. So 25% growth year-to-date. That's a pretty impressive number quite honestly.

It is. I think the lumpiness of the business can affect things. So when we talk about a 12-month performance period, a good idea might be to take the rolling 12-month performance period. I understand the more traditional methods of last 12 months' comparison, but to answer your question more directly, it's the lumpiness that will affect us -- that can affect us.

There's obviously lumpiness in the letting of contracts, but there's not a seasonality and there's significant tailwinds as you've highlighted with mutual submarine orders and with other factors, that's, obviously, a tremendous amount of tailwinds driving things so that, if we're looking out over a year or two years, it's -- you should see substantial growth in demand. Because the Navy is planning on building a fair number of these submarines and actually, if anything probably needs to build more than they're currently looking at building as opposed to building fewer.

That's correct.

And inside the boat, you mentioned -- when you -- earlier, you mentioned the number of areas you obviously -- your capability works well for areas such as doors, hatches, seals. Can you give us an idea of when you look at TechPrecision's expertise on these boats or capability, where on the boat are you seeing growth opportunities?

So let me give you an example that is also public knowledge. For Virginia class, Block 5, 10 boats planned, boat number two through number 10 have, what's called -- they will be adding more capability for missiles. So they're adding four more missile tubes in the center section and extending the length of the boat. What that causes is basically a lot more area in the boat that hasn't existed before. So that generates more demand for -- to both shipyards as well as the primes and their subcontractors, to build more parts. It's not just only the four missile tubes. So these four missile tubes are seven shooters. So they have a capability of launching up to seven things in them, including missiles, Tomahawk missiles, but also inside the boat itself there is a number of different items that are very large and high precision that would fall into the expertise of Ranor.

Right. And so we should, going forward -- because these boats are getting bigger. These are areas -- doors and others are areas that you've had historical success providing for electric boat and for prior classes of submarines. So the fact that you're adding more of these and also exploring and, I assume some of your new equipment was not only to refresh what you have, but to potentially add additional capabilities. Is that correct?

Additional capability and additional capacity.

Right. So, as you say, everything here is setting up. So if you're not comfortable with telling me what or talking about what revenue should be this year, it would seem that you should be fairly comfortable about where revenues are heading over the next few years. Is that correct?

That's correct.

And that would be meaningfully higher than they are today?

Well, meaning that will higher meaning like…

Yes, so it just seems to me that you're in a situation where obviously things are working very well for you. If these things play out would you -- should we expect, it would seem we should expect that you'll be able to increase the profitability? From my original comment, this is where you'd get the flow-through and you'd get meaningful ramp up in earnings numbers and the like.

Right, that's what we all need.

Yes. Well, good luck achieving it. And we strongly support the Board's efforts to find ways to maximize value. And quite honestly, as you grow cash there's a point in time where shareholders have not been served well by, what appears to be some selling. Perhaps we gave a few too many shares through a prior management team, which I had no love lost for. So good luck, keep the good work up.

Thank you very much.

Okay. And it looks like that was our final question.