Greetings ladies and gentlemen and welcome to the TechPrecision Corporation Fiscal 2022 Fourth Quarter Financial Results Conference Call. It is now my pleasure to turn the floor over to your host, Brett Maas. Brett, the floor is yours.

Thank you. On today's call is Alex Shen, Chief Executive Officer; and Tom Sammons, 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 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 represent management's estimates as of today, July 13, 2022. 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 afternoon to everyone and thank you for joining us. The fourth quarter of fiscal year 2022 was a strong quarter for capturing new sales orders. I am excited to share with all of us that we successfully grew our backlog to $47.3 million at March 31, 2022, up significantly from $35.2 million at December 31, 2021. Furthermore, we have secured additional sales orders of close to $9 million after the fiscal 2022 year-end. Our financials for fiscal year 2022 include seven months of business activity from our STADCO subsidiary. We identified STADCO as a prime turnaround acquisition and successfully closed the transaction on August 25, 2021. On that date, we also achieved a key milestone in successfully refinancing our bank debt for the combination of both subsidiaries, giving us the flexibility to enable the turnaround and rebuild of our STADCO subsidiary and flexibility to move forward with Ranor specific initiatives. A successful turnaround is about focus, good sharp focus, which leads to good success. At STADCO, our sharp focus is on shepherding cash, rebuilding customer relationships and supplier relationships, establishing operational discipline, and growing the backlog. Regarding relationships, Tom and I have personally engaged with key STADCO customers, as well as key STADCO supply chain partners. Many of these engagements were face-to-face. We will continue to assist STADCO to rebuild relationships with key customers, both legacy and new customers. In tandem, we will continue to rebuild relationships with key supply chain partners which has paved the way to reestablishing terms. A direct result of customer confidence and supply chain confidence is the significant growth in our backlog to $47.3 million at March 31, 2022. We expect to deliver the backlog over the course of the next two to three fiscal years. Our path forward is centered on operational discipline infused with the appropriate sense of urgency. This includes specific initiatives to rightsize costs and do it right the first time, improving operational accountability, and reducing unplanned overtime. Operational discipline captures and maintains customer confidence and supplier confidence in STADCO as well as Ranor. With the addition of STADCO, we recognized additional revenue, but also absorbed additional costs that dampened our margins and added to our selling, general and administrative expense and interest expense. Selling, general and administrative expense included one-time costs related to the STADCO acquisition that we expect to decrease materially in future quarters. We believe business prospects are strong as evidenced by the increase in new sales orders. We expect to see revenue growth and improved profitability in future quarters. I would like to turn the call over now to our CFO, Tom Sammons, to continue with the review of our fiscal year 2022 results. Tom?

Thank you, Alex. Net sales for the fourth quarter of fiscal year 2022 were $7.6 million or 88% higher compared to the same quarter a year ago as we added a full quarter of STADCO revenue. We recorded an increase in revenue in our defense markets which were more than offset by a decrease in precision industrial revenue. Our defense backlog remains strong as new orders captured in the quarter and after were largely from prime defense contractors. Cost of sales were $6.4 million or $3.3 million higher due to the additional cost of sales from our STADCO subsidiary. Gross profit was $1.1 million or 22% higher compared to the same quarter a year ago. However, gross margin percentage was lower because of higher unabsorbed factory overhead and an unfavorable production mix at STADCO. SG&A expense increased by $0.8 million due to the addition of STADCO and increased spending for outside advisory services, including approximately $110,000 of one-time costs in the quarter and travel related to the STADCO acquisition. Our operating loss was $273,000 compared to operating income of $298,000 in the same period in the prior year. Interest expense increased to $88,000 from $43,000 in the same prior year quarter as we added new debt to the balance sheet on August 25, 2021, to acquire STADCO and increase our borrowings under the revolver loan. As a result of the above, we recorded a loss before income taxes of $402,000 in the fiscal 2022 fourth quarter compared to income before income taxes of $259,000 in the same period a year ago. Net sales for the fiscal year ended March 31, 2022, which included approximately seven months of STADCO, were $22.3 million or 43% higher than the same period last year. Gross profit was $3.4 million, slightly lower compared to $3.5 million for fiscal year 2021. SG&A expense increased by $2.1 million with the addition of STADCO and related acquisition expenses. One-time acquisition expenses for fiscal year 2022 were approximately $685,000. The operating loss was $1.6 million compared to operating income of $623,000 a year ago. Interest expense increased by 33% year-over-year as we incurred higher interest costs associated with higher average debt levels in fiscal 2022. We also realized a one-time nontaxable gain of $1.3 million in May of 2021 from the forgiveness of our Paycheck Protection Program loan. Loss before income taxes was $542,000 in fiscal 2022 compared to income before income taxes of $426,000 for fiscal 2021. Moving on to cash flows and the balance sheet. We realized cash inflow from operating activities of approximately $258,000 for fiscal 2022 and used $939,000 for capital expenditures. Our total debt was $7.4 million on March 31, 2022, compared to $3.8 million at the end of our prior fiscal year. Cash balance at March 31, 2022, was $1.1 million compared to $2.1 million at March 31, 2021. Working capital was $2.8 million at March 31, 2022, compared to $5.2 million at March 31, 2021. With that, I will now turn the call back over to Alex.

Thank you, Tom. TechPrecision is proud and honored to serve the United States defense industry, specifically naval submarine manufacturing through its Ranor subsidiary and military aircraft manufacturing through its STADCO subsidiary. We aim to secure an enduring partnership with our defense customers. Overall, in both the Ranor and the STADCO subsidiaries, we continue to see meaningful opportunities in our defense sector, as evidenced by the very significant increase in our sales orders and backlog. We are encouraged by the prospects for growing our revenue and increasing profitability in future quarters. Finally, a reminder again that we do most of our work in industries that are highly sensitive to confidentiality which precludes 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 that I am not allowed to discuss that is based on customer requirements and the environment in which we conduct business. Operator, please open the line for questions.

And the first question is coming from Ross Taylor with ARS Investment Partners.

First, congratulations on the great growth we're seeing in backlog. It looks like we're really getting the story to come together. But can you walk us through, Alex, what you see needing to be done to get STADCO to where it looks like it's operating basically at a breakeven level operationally? And then obviously, you got the SG&A expense which was not an insignificant drag on the numbers this last year. So can you walk us through what you guys are doing and how you're working with STADCO to get that specific area addressed so we can see the kind of margins that we are expecting out of Ranor and STADCO?

So I don't know that I'll be able to give you enough detail that you can tie it to margins, but I can tell you about operational discipline. The key to beginning the operational discipline is really having a sense of urgency in the appropriate areas and at the appropriate times. Timing is everything. We can't afford to defocus ourselves and try to have a sense of urgency about 100% of the day. We'll be exhausted. We're going to need to be smart. We're going to need to have a plan. We're going to need to have a daily get together to start the day, to end the day, to start the shift, and to end the shift. It's really blocking and tackling on a very daily basis, on a very detailed basis. I hope that gives you enough of a flavor of what we had to do operationally.

Okay. I don't expect you to detail the exact margins you're seeing or anticipate, but when you took over Ranor, it was expected that you could manage the company similarly as we ramp up the business. It seems the business is beginning to scale rapidly. Would it be incorrect to think that over time, you would expect STADCO to demonstrate performance numbers akin to what we would see at Ranor?

So there's no short circuiting this thing and there's probably no getting around the fact that we need to have one in order to have the first one. And then two points will make a line and three points would make a trend and we're going to go that way. The first thing to do is when are we going to get that first one? I don't know yet, but we will keep you posted. We are absolutely very encouraged with the return of customer confidence. We are absolutely very pleased with, I guess, I'm pleased with ourselves, me and Tom, we actually engaged to assist and some things really happened because we assisted. STADCO has a strong management team. The managers are strong. We can center around them for the operational discipline and find areas where we need to either assist more or really monitor and improve the operational accountability. So as far as being similar, perhaps they're similar. I would like to suggest that each case needs to be managed carefully. I try not to make too many assumptions, but also use the lessons learned. The combination of the two companies is not just on paper. There are people that are helping more than just Tom and myself.

Great. The goal is to integrate and derive best practices from both organizations. Looking at the increase in revenues or backlog, it seems we have begun to unlock funding from the government. Do you foresee any reasons to expect a slowdown in these numbers? We have built up the backlog quite aggressively. You mentioned you added to it, moving from $47 million to an additional $9 million since the end of the fiscal year. Should we anticipate a higher rate of backlog growth this year compared to last year?

Well, Tom is waving at me and making the up and down wave. So...

Don't say it. Don't say the word.

I didn't say it.

I can ask it.

We say those words, so the business has ups and downs, yes.

Okay. Ups and downs, it's better than the L word. Okay. I'll let someone else ask a question.

Ross, thank you for your support.

Up next, we have Steve Mishan, Private Investor.

I have been a long-term shareholder and have witnessed the turnaround that you and your management team have achieved, so I have a lot of confidence in you. As Ross mentioned, there are two key points: improving revenues and enhancing margins. With the backlog increasing, we should anticipate revenues to rise accordingly. While things seem promising in that regard, I'm concerned about the margins. Back in 2021, when you first discussed STADCO, you mentioned it would take two to three quarters to resolve unprofitable contracts, but it appears to be taking longer than anticipated. Your expectation of a material decrease in one-time costs and gradual margin improvements doesn’t seem to align with the initial timeline you provided. It sounds like it has already exceeded those two to three quarters. Are things taking longer than you expected to reach your desired outcome?

Tom, do you want to go first? I can go?

Well, one-time expenses, we've already seen that starting to drop. I think Q3 was over $300,000. I don't have the number right in front of me and then this quarter was $100,000. As we work through a few issues that will eventually anticipate even further on the sales side.

On the sales side, we are absolutely doing better than what I thought we were going to do. I'm very surprised and excited at the actual results of what we're able to achieve. The first thing is to get the backlog, to achieve the relationship rebuilding and the results of that to get the backlog. So I think to put things into perspective, without the backlog, we can't have more revenue and we can't have any more margins because we don't have the backlog. So I think we've gotten a very, very good first step, very exciting here. Is it taking longer? I don't think so at all. There was no indication that we gave that it would take two to three quarters to do the turnaround and have it all fixed. That was not the indication. So if somebody took that away as a takeaway that wasn't my takeaway.

Okay. And again, there's a lot of cost and expense to integrate a new company within. Endgame, everything gets fixed, the company is running efficiently. And I don't know if you can answer this question or not but what are your target net margins down the road?

I think it's going to take some time before I'm going to be able to answer that with any type of intelligence. So whatever I tell you now is probably going to be at the very least and in polite words, incorrect. Tom, would you like to forecast?

No. It's a combination of margin and volume, right?

And also, again, the business has ups and downs. It's lumpy by nature.

As we receive new orders, we are more engaged in the pricing process to ensure we are setting prices at a more favorable rate, ultimately aiming to enhance our margins and profitability.

Yes. Again, our business is not quarter-by-quarter. That's probably not a really good gauge of trying to measure this type of business. This business spans decades.

And when you talk about return of customer confidence, rebuilding customer and supplier relationships, is that with STADCO? Is that with Ranor? Is that with both?

This is absolutely with both because customer confidence isn't captured just once. We have to capture and maintain and recapture and remaintain constantly. In doing so, we can really now get subscribed to the decades-long submarine builds and military aircraft builds. So that applies for both subsidiaries.

Okay. When you mention shepherding cash, could you explain what you mean by that?

Conserving cash.

Keeping a constant eye on cash, I mean.

We operate with daily cash reports. Tom and I both look at cash like we only have one cent to spend between the two of us. This mindset needs to be maintained even after the turnaround is complete. Otherwise, we risk falling back into a cycle of lack of accountability, both financially and operationally. Shepherding cash means being very diligent about our spending, as if there is only one cent available for both of us to use.

All right. And then, again, maybe another question. You may not be able to answer just from listening to other calls. But obviously, there's the submarines, there's the helicopters. But in the past, there's been revenues from MEVION which I think has been classified under precision equipment. And MEVION, from time to time has new sales, are there still revenues coming...

I'm going to interrupt you very quickly. I'm not going to be able to talk about that customer by name.

Okay.

I will not.

Okay. Let me rephrase it then. Aside from revenues achieved from the defense side of the business. Are there other sources of revenue being achieved in the non-defense industries?

There can be.

Precision industrial market. I mean, that's a market where we have fluctuating customers. So sometimes it's up, sometimes it's down.

Yes. Okay, got it. As always, again, really just an incredible increase in backlog. So, I have full trust in the management at TechPrecision to turn this around. So a nice job.

Thank you for your support.

The next question is coming from Mark Gomes with Pipeline.

Great job, guys. Congratulations. Alex, how do you feel about your employee base and recruitment prospects?

Mark, you're cutting out. I think you said employee?

Yes, your employee base and your recruitment prospects.

I think I'm neutral.

So, you feel confident in your ability to ensure you have the personnel you need and the capacity to recruit more as time progresses?

That's a pretty broad question that encompasses all kinds of different questions, right?

Take it as you will.

I'm not negative. And I'm not charging forward screaming that I have the best teams in both locations either. I'm neutral. I think we need to manage each case by case.

Okay. Let's put it this way. You have quite a large number of orders coming in. Where does personnel and ability to deliver against those orders fall on your ranking list of worries?

It falls in operational discipline to be able to manage each one specifically case by case.

And you're confident in your ability to do that?

Manage very carefully case by case. We would not have taken on the orders if we didn't think we could manage each order and break it down into the sub-assemblies, break it down into the discrete parts case by case, piece by piece. We would not have taken those orders. I'm not afraid to decline orders.

We have a follow-up from Ross Taylor with ARS Investment Partners.

Alex, with regard to the backlog in the fourth quarter and since the end of the fiscal year, how much of that backlog comes out of the DoD as a rough percentage?

Well, hopefully, you can rephrase the DoD piece and just use the government overall.

Okay, sure. That would be fine.

Almost all of it.

Okay. Were there in either of those numbers post end of the fiscal year or fourth quarter, programs that we have not talked about on these calls before? Were there programs that were not helicopters, were not the F-15EX, were not a submarine or an aircraft carrier?

Absolutely.

Okay. And it came out of the government. Okay. So I won't ask you if you're working on any programs that might be identified like NGAD because that would be unfair because you'd have to say no comment, right?

Right.

It looks like we have a question coming from Richard Greulich at REG Capital Advisors.

I want to follow up on Ross' question and your response to ensure I understood it correctly. You mentioned that there are orders in the backlog from business segments that have not been addressed in previous conference calls.

That's not exactly the question that Ross asked. Previously discussed.

Okay, previously discussed, okay. So the programs that most people are aware of that have been discussed and you're saying that there are orders that you've received outside of those programs?

That's what I answered, yes.

Okay. We have no remaining questions in queue. I'd like to turn the floor back to management for any closing remarks.

Thank you, everyone. Have a great day.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.