Welcome to the TechPrecision Corporation Fiscal Year 2025 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Brett Maas, Managing Partner of Hayden IR. You may begin.

Thank you. On the call today is Alex Shen, Chief Executive Officer and Richard Roomberg, 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 questions. Therefore, the company claims the protection of the Safe Harbor from 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 of the company's future performance represent management's estimates as of today, January 21, 2025. The acquisition 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, the floor is yours.

Thank you, Brett. Good afternoon to everyone, and thank you for joining us. As previously disclosed, the company held its Annual Meeting of Stockholders on December 19, 2024. And as a result, six directors were elected: Andy Levy, John Moore, Walter Schenker, Alex Shen, General Gene Renuad and Rob Straus. On December 23, 2024, the Board appointed by unanimous vote General Gene Renoir to serve as Chair of the Board and Rob Straus to serve as Vice Chair of the Board. Effective January 13, 2025, John Moore resigned as a member of the Board of Directors to focus on his other responsibilities. The Board has decided not to fill the vacancy created by Mr. Moore's resignation at this time. The composition of committees of the Board is as follows. The audit committee members are Andy Levy, General Gene Renaud and Walter Schenker. Walter Schenker is the Chair. The compensation committee members are Andy Levy and Rob Strauss. Andy Levy is the Compensation Committee Chair. The Nominating and Governance Committee members are General Gene Renuad, Walter Schenker and Rob Straus. Rob Straus is the Chair of the Nominating and Governance Committee. I would like to share some remarks from our Board Chair, General Gene Renuad and our Board Vice Chair, Rob Straus. The Board of Directors is committed to improve transparency for its stockholders, including the return to timely SEC filings. Enhanced accountability policies should drive better financial performance. A renewed focus on existing operations is an immediate priority, especially at Stadco, but also at Ranor. All directors are working constructively together to maximize stockholder value. As for myself as the CEO and the Board Director, I'm looking forward to forging ahead, constructively and with alignment. As a matter of fact, General Gene Renuad and Rob Strauss will both be on-site…

Thank you, Alex. As Alex stated, consolidated revenue for the second quarter of fiscal year 2025 was $8.9 million or 12% higher when compared to $8 million in the same quarter a year ago. Consolidated cost of revenue was $7.9 million or 14% higher than the prior year period, due primarily to higher production costs and under absorbed overhead at Stadco. Consolidated gross profit was $1 million or 2% lower compared to the same quarter a year ago. SG&A expense decreased by $0.1 million primarily due to the decrease in spending for outside advisory services. Operating loss was $0.5 million for the second quarter of fiscal 2025, an improvement when compared to the same period a year ago as Ranor turned in a strong performance in Q2. Interest expense decreased by approximately $38,000 due to lower borrowing levels under our revolver load. Net loss for the quarter was $0.6 million compared to $0.5 million to the same period a year ago. Revenue was $16.9 million for the six months ended or a 10% increase over the same period a year ago as revenue increased 1.3 million or 19% at Stadco. Cost of revenue increased by $2.1 million, the result of higher production costs at Stadco. Gross profit and gross margin both decreased as a result of those higher production costs. SG&A increased by 6% primarily due to a change in fair value for the Votaw breakup fee. Operating loss as a result of the breakup fee. Operating loss expanded as a result of the breakup fee and Stadco’s higher production costs. Interest expense increased slightly by 1% as overall interest costs were virtually equal to the same period a year ago. Net loss was $2.1 million due to recurring losses at Stadco. Moving on to our financial position, proceeds from a private placement in July provided $1.8 million. Our total debt was $7.1 million on September 30, 2024 as compared to $7.6 million on March 31, 2024. Cash balance as of September 30, 2024 was $132,000 and availability under the revolver was $1.1 million. Working capital was negative $1.5 million at September 30, 2024 as our bank debt is classified as current due to debt covenant violations. With that, I will now turn the call back over to Alex.

Thank you, Richard. For those on the call who may not be very familiar with our company, TechPrecision, our two subsidiaries, Raynor and Stadco, are custom manufacturers of precision large scale fabricated metal 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 markets, 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 TechPrecision’s specific environment might discuss. Please understand there are real limits as to what I can discuss, and sometimes those limits do change. TechPrecision is proud and honored to serve the United States defense industry, specifically naval submarine manufacturing through our Raynor subsidiary and military aircraft manufacturing through our Stadco subsidiary. We aim to secure and maintain enduring partnerships with our customers. Overall in both the Raynor 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 for increasing profitability in future quarters. Operator Please open the line for Q&A.

[Operator Instructions] Your first question is coming from Ross Taylor from ARS Investments. Your line is live.

Thank you. And first, it's nice to actually have a reemergence of our calls. It's been a long time out. I'm not sure I even recognized your voice when you came on here.

Yes, sir.

I would like to say that I'm really excited about the opportunity that currently exists to rebuild the bridge to the company's shareholders and the future investors. It sounds like it's going to be something that's an important step and it's been long overdue. So I think that's, as I said, really exciting and should help us greatly going forward. Second, I wanted to say I thought the message sent by shareholders was exceptionally clear. Only two candidates got over 40% of the vote. And that to me sent a very clear mandate. It said shareholders want change. They want things done to help improve the relationship we have with you, the leadership team. And I'm looking forward to seeing the fruits of that. And that means I hope that all directors can work to support and further the initiative that the new leadership team wants to put in place. The company has dug a pretty deep hole for its shareholders over the last 12 months to 15 months and I think it's time we start doing something proactively to get out of it. Operating questions I wanted to ask you, how long and where do you think it's going to take what's going to take to get Stadco to a level where it can produce a sustained level of profitability?

Well, we're not at a profitability yet. So I think the first few steps are really needing to, first of all, well, let's concentrate on basics and what's in front of me and I'll try to step through the steps. The first thing on cash management, we are succeeding in cash management and that part of it is going well. We need to continue to be focused on more profit for Stadco. So as I alluded to in my remarks, the lack of profits are coming from four sectors that I have made comments on today. The first one talks about pricing unexpected costs on one-off projects. So we need to do either a better job on organizing ourselves to predict better. And also we need to perhaps not do those and that needs a good hard look to make sure. And we'll be engaging more thoroughly from the front end to make sure we get those. But that is a problem that we've identified to ourselves that we want to be very transparent and identify to our shareholders on the call today as well. So that's one. On legacy pricing problems on the…

…sort of one-off projects we're talking about. I mean, investors have tended to focus on instead those two major programs.

I'm sorry Ross, you're coming in a little muffled.

Okay. Can you explain, talk a little more about the one-offs, what are they? Because investors tend to see Stadco as really a play on the F-15EX and the CH-53K. And those are big projects that appear to be moving rapidly towards run rate ramps where each would be producing over 20 a year. And so I'm curious though. I have not heard a great deal of talk in the past about one-offs. So I'm curious. What type of business are these in nature? How big are they? And was this just a case where you bid badly on them, or they were more complicated? What was it that caused the losses there?

Okay. So let me break down your questions into my digestible chunks. So you're right as far as F-15EX and also CH-53K Sikorsky Marine helicopters. Those are what we consider not one-offs and core business and repeating business. So the one-offs are -- if we go back on what Stadco is, Stadco builds parts that fly in the air and also builds tools that builds parts that fly in the air. The tools, for example, are one of the one-offs. There's not a great, big demand for tools. They only come once in a while. And when they do, they don't tend to repeat. There's only very few sets of tools that's needed to build multiple parts. That's an example of a one-off. Another example of a one-off would be just filler work that we need to do to fill in gaps that are caused by a lack of a cadence in, for example, some material between one build and another build for a helicopter main gearbox part. Those are probably two examples, highly likely examples, of one-off.

Where the problems…

Where the problems are that you were asking on, are they in pricing? Are they in -- so when we don't do these one-offs and don't have historical data, we do our best to analyze the information that's given to us by our customers, and we base our quote on the best information available? So is there a pricing problem? Sometimes there is a pricing problem. Is there a lack of information, or changing information from the customer? Sometimes there is. It's a more of a case-by-case. And since it's a one-off, it doesn't really repeat itself very well, so we can't detect patterns easily that will repeat from one kind of one-off to a similar kind of one-off. Each one is basically its own animal that really needs to be evaluated per the situation. And some situations sometimes change. Do we have the capability -- I'm going to go on and question myself some more to provide you more transparency and answers. Do we have the ability to -- when we detect a problem, do we have the ability to perhaps even go as far as giving it back to the customer? It depends on the situation. The answer is not a straight no. It's not a straight yes either. It depends, but we need to take more steps, both in the front end and in the middle, to identify these problems and involve the customer in solving these problems before we get to a point of no return. I think we just need to exert more care along the way. As Stadco continues its turnaround process. And as we continue to add back more capability that was lost over a decade of decline, we're putting back more capability, and we're putting back people that have that capability, that are recognized as having the expertise. And it's been taking time. We're doing better. We need to continue to do better and a little bit faster. I have some -- personally, some pent-up -- I guess my pants are a little bit more on fire to myself. So I would like to see me do a better job. I would like to see this turnaround at Stadco go faster and better and more consistently so we can finally reach a quarter or two of breakeven and then poking its head above water. I'm sorry for the long explanation.

I will tell you I already see a change in how you're approaching these calls, and I want to say thank you because I think this is a change and it's important. So I appreciate the thoughtfulness you're giving to your answers.

Yes. Thank you. If you don't mind, I would like to maybe -- I expanded on the two points that I made, but I made four points during my opening remarks. And the third point on machine breakdowns in this quarter that we're reporting on that disrupted expected throughput, and perhaps the under-absorbed overhead costs that really ends up being a result of -- the under-absorbed overhead costs somewhat are going to continue to happen, depending on the ebbs and flows of the business and some mix, highly up and down. That's the fourth point. Will we be able to -- we need to minimize it as much as we can because eliminating it is a good goal to have and it's very difficult to completely eliminate. I'll say that much. That doesn't preclude us from doing everything we can to minimize that. The machine breakdowns will -- we'll be concentrating on what other actions can we take against these machines that exhibit problems? So we have, every quarter, diligently gone back to fix the problems that come up. They're getting better because as we continue our -- really our pressure on finding a problem, fixing a problem, categorizing the problem, prioritizing the problem and even changing machines to a different machine that can still do the job, we're not made of money. We can't just sink everything into maintenance and repair. We need to judiciously prioritize and take the most important one and kill each problem as it comes in priority order, not just the loudest problem, but the highly impactful problem. We will continue that, and we will continue to report on that. I don't want to let go of explaining it. That's all I was trying to say.

Right. And you had machine downtime, and this is the September-ending quarter you're talking about. So therefore, I would assume that you were able to fix that in the following quarter and that we're now at a state where the manufacturing plant is operating as you would hope it to be operating?

I think this is taking longer because the things that we fix generally are staying fairly fixed. But after about 14 years of decline and delayed maintenance through all that, more than a decade, almost 1.5 decades, certain other things go wrong. So you make a machine robust on the left side and something goes wrong on the right side. I'm oversimplifying, of course. But to have it all balance out and be better is taking some time. We are doing our best. We'll continue to report on that and make things more clear.

Are you at a place operationally where you can meet the demands of the Marine Corps, the Navy/Marine Corps, and the Air Force to produce the components they need you to produce to get F-15EX and CH-53Ks up to the projected run rate?

Can we reach the projected run rates? The quick answer is yes. How are we doing it? We're doing it very carefully because you can't just look at one sliver in time where we're not doing well. We need to look at it over time. Can we meet it -- for example, over a 12-month to 24-month period, can we meet the demand? Yes. If you take a bad quarter, well, you didn't meet the demand there. I agree. But the bad performance of a quarter or of a month or of a week does not extrapolate itself over a period of 12 months to 24 months. I'm sorry, Ross, I hope that explanation made sense.

No, it does. And there's obviously an ebb and flow. But if I drive up the Merrit Parkway to Sikorsky plant where they are producing the CH-53K, they -- you are not going to be some -- your components are not going to be something that is keeping them from pushing those out at the rate they need to push them out over the next few years is what I hear you saying.

As usual, you hear very well.

My wife doesn't think so, but okay. Away from that, when you talk about -- and obviously, if you get up there, I would assume that those programs, at run rate, would change the concern about unabsorbed overhead because they would push enough revenue through to absorb that. Is that correct?

It will help the unabsorbed overhead, yes. But there's some ebbs and flows inside these core projects themselves. So as I had alluded to before, completely eliminating it is -- probably the more realistic way is how do I minimize it as much as possible?

And also, I hear you saying we should probably look at the company more on an annual year run rate as opposed to a quarterly run rate basis because you kind of think, if they're producing 24 CH-53K, that's 2 a month. And in reality, it's not always going to be that precise. Some months, it might be 1. Some months, it might be 3 or 4 or something of that nature. And that's something that I hear you saying is going to impact quarter-to-quarter. But over a 12-month period, that should even out.

Right. You're not going to find this in the papers as the guy that stopped production. That has not happened.

Good. And I want to swift quickly -- shift quickly over to Ranor. And we saw that Huntington Ingalls talked about consolidating its suppliers and the like. Are you finding -- how are you finding that opportunity? Are you finding -- and actually also as well as Stadco, or Stadco and Ranor, are you finding your customers are asking you or wanting you to take on more project responsibility in an effort to overcome the production bottlenecks that have been hurting, particularly with regard to the submarine program?

Let me answer that with a different answer. And I think you'll be able to glean what I'm able to say with what I'm able to say. So we have secured three tranches of supplier development funding. And the third tranche is on the way to being fully funded. And this is a very important initiative that has a lot of eyeballs on it from both major shipyards, Newport News Shipbuilding as well as Electric Boat. The whole notion is to not add new capability as much as adding capacity to Ranor and adding a backup capability to Ranor with multiple options, in case there's a bottleneck at Ranor, to relieve that bottleneck by funding equipment grants to Ranor to put in redundant second, even third, machines for more capacity. So those efforts have been underway for a number of years at Ranor and are bearing fruit now. I hope that answers your question.

Yes. And they pay you for that? You're not forced to sit with substantial unabsorbed overhead so that they don't -- they -- factor?

So the unabsorbed overhead are all labor hours related and not idle CapEx investment related. So if we parse that out to the CapEx, those are CapEx grants that come from the U.S. government, through the Navy, and through organizations that fund us. That's it.

Great. I will let some others ask questions. I do want to say I think that I already hear a different tone out of you. I feel that you're more responsive. I feel I'm having to spar less with you, Alex. And so I think this is really -- we're entering -- hopefully, the next year will undo a lot of the damage that the last year has done. Thank you.

Thank you.

Thank you. That concludes our Q&A session. I will now hand the conference back to management for closing remarks. Please go ahead.

Thank you, everyone. Have a great day.

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.