Earnings Call Transcript - TPCS Q2 2026

Operator, Operator

Greetings, and welcome to the TechPrecision Corporation Fiscal Year 2026 Second Quarter Financial Results Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Brett Maas with Hayden IR. Sir, the floor is yours.

Brett Maas, Host

Thank you. On the call today is Alex Shen, Chief Executive Officer; and Phil Podgorski, 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, November 13, 2025. 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, please continue.

Alexander Shen, CEO

Thank you, Brett. Good afternoon to everyone, and thank you for joining us. Please excuse my raspy voice; I've got a little bit of a cold here. Fiscal 2026 second quarter consolidated revenue was $9.1 million or 2% higher when compared to $8.9 million in the fiscal year 2025 second quarter. Consolidated gross profit totaled $2.5 million or $1.4 million higher when compared to the second quarter of fiscal year 2025. At both Ranor and Stadco segments, favorable customer mix has resulted in improved margins. Fiscal year 2026 second quarter Ranor revenue was $4.4 million, with operating profit of $1.6 million. Second quarter Stadco revenue was $4.8 million, with operating loss of $0.5 million compared to the same period a year ago. Stadco had an $873,000 improvement in operating income. For the second quarter, operating income was $0.9 million, and favorable customer mix enabled three drivers: one, better throughput at Stadco resulting in higher revenue; two, lower provision for losses from specific first article costs; and three, lower provision for losses from one-time contracts. We remain highly focused on aggressive daily cash management, which is a critical piece of risk mitigation. We continue to manage and control expenses, capital expenditures, customer advances, progress billings, and final invoicing at shipment. Our tactical execution focus and success enable us to continuously resecure strategic customer confidence at both segments. At our Ranor segment, sustained delivery and installation of new equipment continues as we specifically execute the $21 million plus of completely funded grant money from our U.S. Navy-related customers. Customer confidence remains high at both Stadco and Ranor. Our customers have expressed their strong confidence as we continue to maintain on-time delivery of quality components. This delivery performance is leading both Stadco and Ranor to new quoting opportunities in air defense and submarine defense sectors with the same customers that already know and trust our capabilities. Both subsidiaries are continuing to experience meaningful new capture of business awards from these same customers, adding to our already strong $48 million backlog. We expect to deliver this $48 million backlog over the course of the next one to three fiscal years with gross margin expansion. Now I'd like to turn the call over to our Chief Financial Officer, Phil Podgorski, to continue with the review of our second quarter and six months ended fiscal year 2026 results.

Phillip Podgorski, CFO

Thank you, Alex. As Alex just mentioned, for our fiscal 2026 second quarter, consolidated revenue increased by 2% to $9.1 million compared to $8.9 million in the same period a year ago as we continue to focus on building our strong recurring revenue customer base. Consolidated cost of revenue decreased by 16% or $1.3 million as throughput and customer mix improved at both segments. Consolidated gross profit increased by $1.4 million in Q2 fiscal 2026 to $2.5 million, resulting in double-digit year-over-year consolidated gross margin improvement of 16 percentage points. Consolidated SG&A increased slightly by 1% to $1.5 million in the fiscal 2026 second quarter due to increased general office expenses but was partially offset by a decrease in outside advisory and consulting costs. Fiscal 2026 second quarter interest was higher due primarily to higher borrowing under the revolving loan related to interest cost rates. Net income was $0.8 million for the quarter, with $0.08 per share on a basic and fully diluted basis. For the six months ended September 30, 2025, consolidated revenue was $16.5 million or 3% lower when compared to the same period a year ago. Consolidated cost of revenue was $13 million or $2.7 million lower than the same period a year ago, again due to favorable customer mix and productivity gains at both Ranor and Stadco. As noted, favorable customer mix and productivity gains increased gross profit by $2.2 million or 14 percentage points year-over-year. SG&A decreased by 2% as lower outside advisory and consulting costs more than offset the increase in general office costs. As a result, operating income increased by 126% to $0.5 million. Interest costs increased by 3%, again on higher borrowings under our revolver loan, resulting in net income of $0.2 million or $0.02 per share on a basic and fully diluted basis. Moving on to our financial position, we continue to actively manage our cash flow, as Alex mentioned. Net cash provided by operating and investing activities totaled $0.2 million for the first six months in fiscal 2026. Net cash used in financing activities totaled $0.2 million, primarily to pay down principal under our revolver and term loans. Our debt was $7.3 million on September 30, 2025, compared to $7.4 million on March 31, 2025. Our cash balance on September 30, 2025, was $220,000 compared to $195,000 on March 31, 2025. Now let's take a little deeper dive into the segments for fiscal 2026 Q2. For Ranor, second quarter revenue was down year-over-year by $0.4 million. However, overall strong margin growth was evident across all projects, resulting in improved margin drop-through of 7 percentage points and contributing $2.2 million in gross profit for the quarter. Stadco Q2 fiscal 2026 revenue increased by $0.6 million compared to the same period last year as we continue to focus on repeat work. Stadco experienced Q2 year-over-year gross profit margin improvement of 9 percentage points or $800,000. The Stadco improved gross profit versus prior year is primarily the result of improved contract pricing, customer mix, and improved production efficiencies. While this is an improvement, the company continues to face headwinds on legacy contracts and underpriced one-time contracts. As Alex mentioned, we continue to actively work with our customers on these contracts towards recovery and new pricing. With that, I'll turn the call back over to Alex.

Alexander Shen, CEO

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 markets, predominantly defense. 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 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 both our Ranor and Stadco subsidiaries, and military aircraft manufacturing through our Stadco subsidiary. We aim to secure and maintain enduring partnerships with our customers. Overall, at both the Ranor and the Stadco subsidiaries, we continue to see meaningful opportunities in our defense sector, as evidenced by the continued strength of our backlog. We are encouraged by the prospects for growing our revenue and increasing profitability in future quarters. In summary, we had a profitable consolidated quarter. We are showing progress and have more work to do with our Stadco subsidiary to get it into the black. We filed on time, and we are targeting to build and sustain this trend. We want to build this trend. Operator, please open the line for Q&A.

Operator, Operator

We have a question from Ross Taylor with ARS Investments.

Ross Taylor, Analyst

First, I never thought I would live to see the day when you all reported within the expected timeframe. So congratulations, that's a really impressive turnaround. What percentage of your Stadco business still needs reworking to become profitable, or involves one-off contracts that you need to complete to achieve overall profitability?

Alexander Shen, CEO

I don't know about the percentage, but let me break that question down into three parts. Regarding the one-offs, I think those will need to continue. As for the first articles, those will need to continue as well, but the ones that are experiencing losses and loss reserves have been dealt with very vigorously in the last quarter that we're reporting on. So that's good news. Another piece of the issue that was causing loss reserves was our first article activity. That means not just the first unit; it includes the entire first article activity for our repeating part numbers. So it may be the first one, the second and third ones, or it could be the first ten, depending on the situation. These first article activities need to be closely monitored until we can achieve a stable, repeatable, sustainable manufacturing throughput. Moving forward, we'll need to capture new business with new part numbers. It's essential to address the first article activity risks effectively. We want to improve our handling of the first article loss reserves. Set targets will help us ensure that we don't keep missing our goals, and I am committed to building a positive trend with Phil Podgorski.

Ross Taylor, Analyst

Okay. So you said there are three aspects. So you have the one-offs, and those are either run through or in future one-off contracts. We should expect to be able to be profitable. You've got the first articles, which obviously tend to carry lower margins. Did you sense the problem there to be more of a design issue, customer changes, or underbidding?

Alexander Shen, CEO

As I assessed the situation, the issues come from various complexities, especially since we are working with highly critical items for the warfighters. It really depends on the specific situation. This isn't just a matter of one cause; multiple factors contribute. Each part we are building tends to have numerous people involved on both sides, increasing the chances for errors during the handoff process. This is especially true during the first article phase since neither side has prior experience working together on that part number. When we build a second one, we can't always expect it to repeat as smoothly as the first. It's complex, and I can't identify a single main culprit. We need more experience to understand how to aggregate these challenges better. Paying attention to execution details and staying on-site can help clarify these issues.

Ross Taylor, Analyst

Is this an issue both at Ranor and Stadco? Or is it more concentrated at Stadco?

Alexander Shen, CEO

I think the first article problems are prevalent at both segments, but mostly at Stadco. When we consider Ranor, we're primarily reliant on NAVSEA's specifications for Virginia-class and Columbia-class submarines. At Stadco, we deal with multiple sets of specifications. We have a proven track record with these customers. Their specifications are known to us, and we aim to maintain our on-time delivery of quality parts. This focus will guide us toward achieving consistent recovery at Stadco.

Ross Taylor, Analyst

If the Koreans turn the Philadelphia Shipyard into a submarine manufacturing facility, would that be an opportunity for you, based on your current industrial base?

Alexander Shen, CEO

I would love to be able to answer that question, but it falls into an area where I'm unable to speak publicly about it. Can you rephrase or provide another angle?

Ross Taylor, Analyst

Do you see the shift of the Philadelphia former Naval Shipyard into a submarine manufacturer as an economic opportunity for you?

Alexander Shen, CEO

We will look at every single opportunity, yes.

Ross Taylor, Analyst

I would assume that there are components you produce that would be relevant for allies as well as U.S. submarines, given that about 90% of your business is effectively sole source.

Alexander Shen, CEO

You've made great assumptions there, and I align with that way of thinking.

Ross Taylor, Analyst

Can you discuss how you handle the grants received from the federal government, including their characteristics and any restrictions?

Alexander Shen, CEO

We can address this together. The restrictions related to what parts we may use the equipment for prioritize Navy parts. If there are no Navy part requirements, we can use these assets for non-Navy parts not designated.

Ross Taylor, Analyst

And how does it appear on the balance sheet?

Phillip Podgorski, CFO

Certainly, upon receiving the cash, we have an obligation to protect it, so we segregate these funds. We also establish liabilities upon receipt of the cash, whether to suppliers or vendors assisting us in securing that equipment. When onboarding those assets onto our balance sheet, depending on the agreement with our customer, we create an offsetting liability and depreciate over the equipment's useful life. Thus, we establish both assets and liabilities for each unique agreement.

Ross Taylor, Analyst

Are any of the liabilities related to future performance or delivery of services tied to the funding?

Phillip Podgorski, CFO

We are paid for everything we build with this equipment. For one specific contract, we have a ten-year agreement where we need to maintain our performance over that time.

Ross Taylor, Analyst

You've talked about your ability to gain new business. What kind of new business have you seen? Are you involved in any programs, particularly from the Ranor operation?

Alexander Shen, CEO

We are involved in the extensive program mix of Virginia-class and Columbia-class submarines. There are specific programs within those two classifications that we are part of.

Ross Taylor, Analyst

Is there an opportunity for you in the larger unmanned undersea vehicles?

Alexander Shen, CEO

At this moment, we have many opportunities with the same customers and design shipyards. If these customers lead us to that type of opportunity, we are absolutely ready to assess it. We just need to ensure that any first article activities we choose mitigate risk, planned with resilient backup plans and countermeasures for learning during new first article parts and programs.

Ross Taylor, Analyst

It just strikes me that with advancements like longitude doors, there could be a technological overlap as we develop more unmanned underwater vessels. I’ll pass it to others. One request: I'd love to see insiders actually buying stock instead of selling stock as a change.

Phillip Podgorski, CFO

Duly noted.

Operator, Operator

Ladies and gentlemen, we have no further questions in the queue at this time, so this will conclude our question-and-answer session. I would now like to turn the call back over to management for any closing remarks they may have.

Alexander Shen, CEO

Thank you, everyone. Have a great day.

Operator, Operator

Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.