Earnings Call
Techprecision Corp (TPCS)
Earnings Call Transcript - TPCS Q1 2026
Operator, Operator
Good afternoon, and welcome to the TechPrecision Corporation Fiscal Year 2026 First Quarter Financial Results Conference Call. It is now my pleasure to turn the floor over to your host, Brett Maas with Hayden Ir. Brett, 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 estimates as of today, August 21, 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, the floor is yours.
Alexander Shen, CEO
Thank you, Brett. Good afternoon to everyone and thank you for joining us. Fiscal 2026 first quarter consolidated revenue was $7.4 million, 8% lower when compared to $8 million in the fiscal 2025 first quarter. Consolidated gross profit totaled $1 million, an increase of $800,000 when compared to the first quarter of fiscal 2025. At both Ranor and Stadco segments, our production costs decreased and margins increased. Fiscal 2026 first quarter Ranor revenue was $4.3 million with an operating profit of $1.5 million. First quarter, Stadco revenue was $3.3 million with an operating loss of $1.2 million. Compared to the same period a year ago, Stadco had a $469,000 improvement in operating income. Stadco's $1.2 million operating loss this quarter consists of three drivers: one, lower revenue due to business timing and lumpiness; two, losses from onetime contracts; and three, losses from specific first article costs. We are actively pursuing countermeasures and requesting adjustments from our clients. We remain highly focused on aggressive daily cash management, 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 enables 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. We reached a new milestone, building our backlog to $50.1 million on June 30, 2025. This high customer confidence is leading both subsidiaries, Stadco and Ranor, to new quoting opportunities in air defense and submarine defense, respectively, with the same customers that already know and trust our capabilities. We expect to deliver our backlog over the course of the next one to three fiscal years with gross margin expansion. I'll turn the call over now to our Chief Financial Officer, Phil Podgorski. Phil, all yours.
Phillip E. Podgorski, CFO
Thank you, Alex. As Alex just mentioned, for our fiscal 2026 first quarter, consolidated revenue decreased by 8% to $7.4 million compared to $8 million in the same period a year ago, as we continue to focus on building our strong recurring revenue customer base. As a result, the consolidated cost of revenue decreased by 18% to $6.3 million as throughput and productivity improved at both segments. To the point, consolidated gross profit increased by $0.8 million, $800,000 from $0.2 million in fiscal Q1 2025 to $1 million in fiscal 2026 first quarter, resulting in a double-digit year-over-year consolidated gross margin improvement. Consolidated SG&A decreased by 6% to $1.5 million in the fiscal 2026 first quarter, primarily due to the absence of breakup fees on the terminated Votaw acquisition, which was evident in the same quarter a year ago. Fiscal 2026 first quarter interest expense was slightly higher due primarily to higher amortization of debt issue costs related to extending our revolver line of credit. Net loss was $0.6 million or $0.06 per share basic and fully diluted. Moving on to our financial position. We continue to actively manage our cash flow. Operating and investing activities provided a total of $1.6 million of cash in the fiscal 2026 first quarter. We also used $1.7 million in financing activities primarily to pay down borrowings under the revolver loan. Our total debt was $5.7 million on June 30 compared with $7.4 million on March 31. Cash balance on June 30 was $143,000 compared to $195,000 on March 31, 2025. Working capital was negative on June 30, 2025, as all of our long-term debt is classified as current because of certain debt covenant violations. Now let's take a little deeper dive into some of the segments. For Ranor, sales were down year-over-year by less than $100,000 with overall strong margin growth across all projects in Q1, resulting in an improved margin drop-through of 7 percentage point increase and contributing $1.5 million total in gross profit for the quarter. Relative to Stadco, Q1 fiscal 2026 sales declined $300,000 compared to the same period last year as we continue to focus on repeat work and not fill-in jobs. Stadco experienced a year-over-year gross profit margin improvement of 14 percentage points or $500,000. Stadco's improved gross profit versus prior year is primarily the result of improved pricing on contracts and improved production efficiencies. While this is an improvement, the company continues to face headwinds on legacy contracts and underpriced onetime contracts with approximately 30% of our customers, resulting in the $1 million Stadco gross profit loss for the quarter. As Alex mentioned, we are actively working with customers on these contracts toward recovery and new pricing. With that, I will now turn it back over to Alex.
Alexander Shen, CEO
Thank you, Phil. To close, for those on the call who may not be very familiar with our company, TechPrecision is a custom manufacturer of precision large-scale fabricated and machined metal structural components. Our products are designed by our customers. We primarily serve two sectors: defense and precision industrial markets, with a strong focus on defense. Our work involves industries that require a high degree of confidentiality, which limits what we can discuss publicly compared to companies in other environments. Please be aware that there are boundaries to what I can share, and these boundaries can shift. TechPrecision is proud to support the United States defense industry, particularly in naval submarine manufacturing through our Ranor subsidiary and military aircraft manufacturing through our Stadco subsidiary. We strive to create and uphold lasting partnerships with our customers. Overall, both Ranor and Stadco are experiencing significant opportunities in the defense sector, as reflected in our newly reached backlog of $50.1 million. We are optimistic about the potential for revenue growth and increased profitability in the upcoming quarters. Operator, please open the line for Q&A.
Operator, Operator
And we have a question from Ross Taylor from ARS Investment Partners.
Ross Taylor, Analyst
Congratulations on finally getting the backlog up over $50 million. It's been kind of flatlining for a while, so it's nice to see that step higher. Also, it's nice to see the CFO participating in the call in what I think is a meaningful way. I hope that's a sign of significant change as we push forward.
Alexander Shen, CEO
I think there was a question in there, Ross. That is a sign of significant change, and Phil is fitting in really well.
Phillip E. Podgorski, CFO
Thank you, Ross.
Ross Taylor, Analyst
It's great to see that change. I would like to discuss the bad contracts you mentioned. I assume these contracts are primarily with Stadco. How long can we expect them to continue affecting us?
Alexander Shen, CEO
Okay. So let me go to one of Phil's comments that talked about the affected contracts, where about 30% of customer revenue was contributing to that. It's taken us quite a number of years to overcome a set of legacy contracts that were plaguing us, and we are seeing good traction and we'll maintain that good traction. I would say that, that's in the realm of...
Phillip E. Podgorski, CFO
Close to 35%, 40% that we've completed and made progress on already resolving and moving forward with positive pricing.
Alexander Shen, CEO
Yes. I don't know how to forecast when I'll get the next tranche done, but we've been working on that pretty constantly, Ross.
Ross Taylor, Analyst
Okay. So you're indicating that there were around $2.2 million in problematic contracts in the recently reported quarter. You're suggesting that you've managed to address over one-third of those contracts, allowing you to operate and earn revenue from them. Is that a correct understanding?
Phillip E. Podgorski, CFO
Yes, that is correct.
Alexander Shen, CEO
Yes. And then to answer your other questions, are these problems concentrated in one subsidiary? I would say more yes than no. It's not all of them all in one subsidiary. There are still some things that happen, but predominantly all on one side, yes.
Ross Taylor, Analyst
Okay. Go ahead.
Phillip E. Podgorski, CFO
Yes, I was going to say a much lesser degree at Ranor.
Alexander Shen, CEO
Yes.
Ross Taylor, Analyst
Okay. Does your backlog include anything from your new business areas, specifically air defense and subdefense?
Alexander Shen, CEO
It's all air defense and subdefense.
Phillip E. Podgorski, CFO
Yes. And we continue to drive and look for other additional opportunities within those two sectors.
Ross Taylor, Analyst
Okay. So when you mention subdefense, you're referring to submarines in the defense sector rather than anti-submarine warfare.
Alexander Shen, CEO
Correct.
Phillip E. Podgorski, CFO
At this stage, absolutely.
Ross Taylor, Analyst
Yes. Okay. Stadco has been a huge bug. You've owned it for now about 4 years. I think the total cost to shareholders has been meaningfully north of $20 million, what you paid for it and what you invested in and what you've lost from it.
Alexander Shen, CEO
That's absolutely correct.
Ross Taylor, Analyst
Yes. I believe it has resulted in share dilution. It likely influenced the decision to acquire Votaw, which turned into Stadco because of how it was managed and financed. What will it take, and when can we expect Stadco to become a more significant or positive contributor to the operation?
Alexander Shen, CEO
I think it's important to note that we finally had a strong quarter in Q4 fiscal '25, followed by a weaker one. The key takeaway is that we have demonstrated our ability to perform well. Our goal is to turn this into a consistent pattern. If we have one or two good quarters, that establishes a line, and three would indicate a trend. We are committed to making this happen, and we believe we can achieve it. However, I can't specify exactly when that will occur. I would prefer that progress happens more quickly. Let's keep pushing forward.
Ross Taylor, Analyst
I think that since it's been four years, it's important to consider whether the steps you're taking in the renegotiations can lead us to a point where the business no longer negatively impacts the company's bottom line on an operating basis.
Alexander Shen, CEO
So yes. And just not only renegotiation on legacy contracts, but our way forward needs to be filled with different types of things other than just requesting assistance on existing legacy contracts. But moving forward contracts, those are key and critical to our well-being in the future. And Phil is participating heavily on those.
Ross Taylor, Analyst
I was going to say very heavily.
Phillip E. Podgorski, CFO
So yes, from an operational perspective, we're implementing various processes and controls to ensure that we are pricing new bids appropriately. This includes accounting for any costs associated with the slowdown from TechPrecision. We want to ensure that the segments are able to cover all the costs of the organization.
Alexander Shen, CEO
But all that feel-good stuff aside from answering Ross with feel-good words, we really need to get more quarters of profitability and show our stuff in actual proof, yes.
Ross Taylor, Analyst
It would seem that while you did have some issues with some Ranor business, it really seems that what's keeping us from where we need to be is two factors, I believe, one of which is getting Stadco to where it can operate in the green as a business. And then the second is, to me, when I've modeled this company, I keep looking at thinking you should be able to generate meaningfully higher. You should be generating $70 million to $100 million in revenues. And I think that's possible in the sector you're in, the nature of what you guys do and the like. And to do that, we're talking about doing $18 million to $25 million a quarter, and we seem to be kind of stuck in the $7-ish million, $6 million, $7, $8-ish million. What is being done? What are you guys doing culturally to break away from this kind of $7 million, $8 million quarter-by-quarter run rate where we can eke out a profit here or there, but it's never going to be a big one? But my assumption is if you could take that business and double it, which is kind of what I'm saying, you would end up generating a substantial amount of earnings and free cash flow, you'd quickly be able to pay off the debt, you'd be in a situation where you were in a much, much better place. What's been done to drive that top line? And are you starting to hunt for business? Or are you still waiting for business to come to you?
Phillip E. Podgorski, CFO
No, I think I'll start to answer. We definitely have a pursuit list with several opportunities that we are looking to advance. The defense and aerospace industries are not exactly like the Titanic, but they require time and effort to navigate effectively. So yes, we have a pursuit list, and we are actively working on it, ensuring that the opportunities align well with our organization. As Alex mentioned, we excel at and are successful with a lot of repeat work, which is very profitable for us, and that's the direction we intend to take. How long will this take? It's one step at a time, and that’s our current focus. We are strategizing on how to grow our top line organically.
Ross Taylor, Analyst
So this offline should also address the technical difficulties with the CH-53K and F-15EX, assuming we can achieve an increase in the build rate for the Virginia-class submarine. This on one level should lead to significantly higher revenues when you consider our business model.
Phillip E. Podgorski, CFO
Yes, there's no doubt. I think that the other hurdle though is investment in the organization as well, all right? So in order to do that, actuate that, we will need to invest in both equipment like Ranor is getting customer-funded or grants. Stadco right now, we have to, from a strategic standpoint, make those investments. Secondly, I think it is utilizing the facility, right, both first and second shifts, right? And I think we have the ability to do that. The barrier, though that we have is resources. It's tough to find the talent that we need to do this.
Alexander Shen, CEO
It's challenging to retain talent. Both locations excel in their operations and training. However, they face competition from both rival companies and customers that attract our employees. This isn't a new issue; it's been an ongoing challenge. We need to keep pushing forward by increasing our volume and training more individuals. Regarding the cultural changes Ross mentioned, I’ll pass it over to Phil and engage with him as well. Some of our fundamental execution practices are becoming more routine. Phil mentioned in his remarks that costs related to revenue are decreasing due to improvements in throughput and productivity in both segments. This is a result of executing our basic routines more effectively. It's not a fleeting success. Moving ahead, we plan to continue monitoring and auditing our internal processes to ensure these routines remain effective, which will enable us to achieve greater benefits and profits. As our revenue grows, we aim for more than just a proportional increase; we want the gains to be substantial because of these established routines, which allow for better execution even with a smaller revenue base. This approach can easily be scaled up for higher revenues. We've been dedicated to this for some time now. Phil brings valuable experience from the defense industry on the client side, which helps, though he still needs to adjust to the more complex and uneven aspects of our operations compared to RTX, despite it also being a project-driven company of Raytheon. We want to see increased throughput and productivity gains from our foundational efforts at the operational level. We're diligently implementing these routines and actively monitoring them. It's a collaborative effort on our part, and it's proving beneficial. I apologize for the lengthy response, Ross, but your question warranted a fuller explanation, and I wanted to provide some additional insight. Thank you.
Ross Taylor, Analyst
Well, I'm going to actually say, I think this to me, what I'm hearing you say, and first of all, Phil, I think that you, combined with the addition of two directors, appear to me to be meaningfully professionalizing this organization, which is important. I think that often we've struggled to see this, quite honestly, the example of two insiders gifting shares during a quiet period. I've only been in this business 40-something years. To me, that's a totally unacceptable. Good companies don't do that. That's not acceptable. Good companies find a way to make sure they don't lose money when things are slack. And what I'm hearing you talk about is the ability to grow this business. I didn't hear you tell me that you can't get to the numbers I think you need to get to, to generate the kind of revenues you need to push earnings per share here up to a meaningfully higher number than they currently are. So all this is very encouraging if it can be made to happen and if it can be made to happen in a reasonable period of time. So how much longer are you going to frustrate me and disappoint?
Phillip E. Podgorski, CFO
We are committed to making progress as quickly as possible. We also feel pressure from the Board to achieve the same goal. So...
Alexander Shen, CEO
I think it's pressure from our wives too.
Phillip E. Podgorski, CFO
We certainly have a job to do, and we're focused on driving that forward.
Ross Taylor, Analyst
I believe that the changes I’m observing are significant and should lead to gaining momentum. It's quite challenging to change organizations, especially when issues originate from leadership, not referring to you, Alex, but rather the higher-ups. I view the developments I'm witnessing as very encouraging. I appreciate your efforts and wish you luck with the negotiation of the remaining contracts, which should be a priority to resolve. I also recommend exploring new business opportunities, as that could be very beneficial. I was surprised to hear about the second shift from someone at TechPrecision, and it genuinely excites me. If you are working towards establishing a second shift, that would be a major accomplishment, likely resulting in positive outcomes, including increased free cash flow. This influx can enable you to invest in new equipment, reduce debt, repurchase stock, and pursue acquisitions. Overall, I’m feeling quite optimistic as we move forward.
Operator, Operator
Your next question is coming from Richard Greulich from REG Capital Advisors.
Richard E. Greulich, Analyst
So this quarter, there was a $250,000 change in the contract loss provision. Is that correct?
Phillip E. Podgorski, CFO
That is correct.
Richard E. Greulich, Analyst
And was that a result of a new negotiation? I think Alex refers to them as tranches of renegotiation or redetermination of pricing, etc. Was that a new one? Or was that a follow-on from last quarter?
Alexander Shen, CEO
Hold on one second. We're clarifying something, one second.
Phillip E. Podgorski, CFO
Yes. So Richard, we did experience an additional loss reserve, and it is on...
Alexander Shen, CEO
That's on a onetime project.
Phillip E. Podgorski, CFO
One-off projects that has been, I'll say, it's almost in the rearview mirror, right? So we're hoping that Q2, it's going to be gone completely. We're getting...
Alexander Shen, CEO
That's what we're working towards. We've been working towards diligently.
Operator, Operator
Your next question is coming from Mark Gomes from Pipeline.
Mark Gomes, Analyst
Nice to see this call go from entertaining to professional. Congratulations on the progress. First question, if everything went your way, right, you've renegotiated 35% of those contracts that aren't so hot. How long would it take to get to 100% if everything goes your way?
Alexander Shen, CEO
I think that's the question that Ross was asking also.
Mark Gomes, Analyst
Was it worded the same way? I'm really saying like because if you have a good idea of what your obligations are under those contracts and when you're really in a position to renegotiate, you're not in a position to determine how long it will take to renegotiate or how successful you'll be in that regard. But given what you know, if everything went your way, roughly how long would it take to get from that 35% to 100%?
Phillip E. Podgorski, CFO
It's a hard one. Given our customer base and so forth, certainly, our customers are looking to ramp up. I think we know what the administration's agenda is. And it does put us in a bit of a better position, right? We are sole source on some items, single source on others, right? Certainly, the customers do put out to bid, and we're subject to negotiations, hard negotiations with each of these customers. They're much bigger than we are, for sure. So it is putting a lot of pressure to try to reduce when we're trying to increase the price. So each one of them is unique. If we had our way, which is...
Alexander Shen, CEO
If we had our way, it would have been done already.
Phillip E. Podgorski, CFO
Yes, I was just going to say we would have because the effort has already been...
Alexander Shen, CEO
The effort is going on this last four years.
Mark Gomes, Analyst
That's great color and helps quite a bit. So next question, if we look at Virginia, Columbia, CH-53K and F-15EX, where do you sit in the ordering supply chain for that, right? Like we get to see from our side, orders get placed, production schedules, Boeing is ramping up, there's full-rate production on a lot of these things. But where in the manufacturing process do you end up shipping products on each of those programs?
Alexander Shen, CEO
I'm unable to share specific details about my position because I'm involved with sensitive information. However, I can confirm that we are developing new components for new ships, helicopters, and F-15EX fighters. This is a primary focus for us, as we typically do not engage in retrofitting or other related activities. Additionally, I cannot disclose which submarine components I oversee, as that information is closely tied to the manufacturing process.
Mark Gomes, Analyst
I don't need it on a BOM basis, right, on a line item basis. I'm just trying to get a decent feel so that when I see more subs being ordered or delivered roughly in the submarine process, are you on the front end or on the back end of that? And then if you want to do aerospace in general, are you in the front end and the back end in general, if you don't want to dig down to the specifics of 53K and 15EX?
Alexander Shen, CEO
Yes. So go ahead. We're both going to answer the same way. Go ahead, Phil.
Phillip E. Podgorski, CFO
We're currently in multiple phases of our operations. The important point is that we definitely have the capacity to do more. Our progress is dependent on how quickly our customers can provide us with the necessary materials, which we refer to as customer-furnished materials. Much of the inconsistency we experience is due to delays from customers in delivering these materials.
Alexander Shen, CEO
On some contracts, conversely, they're ready to ship us material and waiting for their funding to come through so they can put that funding on a PO because they've already got the raw materials on hand ready to ship today. It really depends on what it is. And just like Phil was saying just now, we're at the front, the middle and the end or into all of it. It's very specific is what it ends up being. It's a very tactical business model that we're pursuing. And the tiny small businesses that we're running is the perfect fit for those. Our capabilities and the trust that the customers have in our capabilities is high. We keep demonstrating we can deliver on time. So it doesn't really matter in the front end or the back end or the middle of the manufacturing cycle. We're demonstrating our capability to deliver on time. That's probably a key color point that's colored green. Back to you, Phil.
Mark Gomes, Analyst
Yes, well, that's been evident and been a big part of the reason why I've stuck with you guys through all of this is that the quality is there, so the bones are in place. Phil, you were going to comment as well.
Phillip E. Podgorski, CFO
I think Alex hit it very nicely, actually. So we're ready to accept more without a doubt.
Alexander Shen, CEO
And we are accepting more.
Phillip E. Podgorski, CFO
Exactly.
Alexander Shen, CEO
We just signed off a couple today and yesterday, me and Phil.
Mark Gomes, Analyst
I just have one more question in two parts. Looking ahead 2 or 3 years, and this is just an estimation, not a commitment or something we will hold you to, I'm trying to gauge your thoughts on how much of your revenue might come from programs you're currently not engaged with. Would you estimate it to be closer to 10%, 30%, 50%, or 75% of your revenue from new programs in 2 to 3 years?
Phillip E. Podgorski, CFO
Yes, we certainly have a strong pipeline of existing opportunities that we can see. We also discussed the additional pursuits and programs we are exploring. At this point, it's all about probability—whether we will secure one opportunity or another. Some of these opportunities could vary from a few million to multimillion. Therefore, we might land a multimillion deal we are currently pursuing, which could represent a third of our total business and would significantly contribute to our growth.
Alexander Shen, CEO
It's a very good answer. It depends.
Phillip E. Podgorski, CFO
It does depend.
Mark Gomes, Analyst
You're discussing numbers for the third quarter rather than considering programs that could significantly grow our business. If you're suggesting that a third of our business in three years could come from new programs, that would clarify my question. Is that an accurate estimate?
Alexander Shen, CEO
I would characterize that answer and say it could be one-third from new programs. New programs, meaning a program has a different kind of meaning depending on what you're talking about. Like if you're talking Non-Virginia class, non-Columbia class, non-15...
Mark Gomes, Analyst
No, I was really talking about new parts. If you expand your participation in the existing programs, that counts as adding to what you have today. Looking forward to your future actions, I can gauge your contribution to each of those programs and how they will ramp up, giving me a sense of what your revenue should be in the future. I come up with similar numbers as Ross. However, if you increase your reach into those existing programs or add parts into new programs, that’s where we need to adjust our model to consider the range of possibilities.
Alexander Shen, CEO
Yes. This is public information, so I'm not revealing any secrets. Electric Boat is relatively close to Ranor within driving distance and has run out of capacity for certain part numbers. Those part numbers still need to be manufactured by someone they trust who can actually produce these new parts for the vendor, even though they are not new for Electric Boat. I want to emphasize that we are part of that.
Mark Gomes, Analyst
That's great. Second part of my question would be, do you feel confident that you'll be able to renegotiate everything that you're doing to the point where you feel comfortable? Or do you think there's a portion of your current slate that you will walk away from?
Alexander Shen, CEO
I'm going to let Phil take a crack at it. He's been watching me and pummeling me and whipping me to death and driving me to visit with the customers. So why don't you take a crack?
Phillip E. Podgorski, CFO
I definitely have pricing on my mind. The short answer is that there is a chance we may have to walk away from some deals. We simply can't keep losing money on contracts. This situation will likely lead to more balanced negotiations with our existing customers. While some contracts may be affected, I don't think it will be the majority. Our customers are generally receptive; they recognize our need to stay in business, which is crucial. So to answer your question, Mark, there might be a few contracts we let go of, but I don’t believe it will be a significant number; it's a small portion, if any.
Alexander Shen, CEO
I think the other thing to lend more color to what Phil just talked about, on these large negotiations, we are single or sole sourced. So the customers are going to experience massive problems going to a secondary competitor that hasn't made these in the last decade or two. So the probability is low. The walkaway possibility is there, yes. And we are not kidding around when we go to negotiations and request that they identify the risk because I need to identify the risk, I need to bring it back for Phil to look at fiscal impact and make a decision. We're very unwilling to walk away, of course, just like our customers are unwilling to let us go. They developed us. We're actually part of them more than not part of them. We're more than just a regular off-the-shelf supplier. We're a custom, probably part of their family of custom suppliers. Without us, they won't have a fighter. Without us, they won't have a submarine that works. It's a big problem. So I think the idea is we're going to continue pushing our position, and we need to come to a mutual understanding. Let's get the vendors healthy.
Mark Gomes, Analyst
Well, aside from your reliability, the fact that you have a strong leverage position as a sole source supplier for many of your products is a major reason for my patience up to this point. Now you’re beginning to see the benefits of that. Thank you very much for your openness. It has been really nice to have these lengthy discussions on these calls.
Operator, Operator
We have a follow-up question from Richard Greulich.
Richard E. Greulich, Analyst
So your customers see what your financial performance has been, not necessarily on each individual contract, maybe they do. But I guess my question revolves around when you go and negotiate with your customers regarding pricing and other aspects of the contract, do you believe that they feel that a 30% gross margin overall is acceptable for both you and them? Or do they think that that's too high?
Alexander Shen, CEO
The questions touch on confidential negotiations covered by an NDA, but I can say that none of our requests are beyond what is reasonable.
Richard E. Greulich, Analyst
Of achievement?
Alexander Shen, CEO
Richard, just let me give you more color. Nothing that I am asking for is outside their allowable actions, nothing. It's all contained within. We have worked ourselves also. And Phil comes from a defense organization himself. He understands what can and cannot happen. Yes. And you bring up also a very good point. These customers have access to our public information on all our finances. So they understand that I'm not biasing them when I tell them a number here, look at my filings. Would you like to go through them page by page? I'm ready to do that. There's over 50 pages on the 10-K, sure. And I have done that. No problem. Yes, yes.
Richard E. Greulich, Analyst
Well, what I'm thinking about is in the past, and I'm saying over the last several years, I had thought that the company operating efficiently and effectively with higher revenues might be able to achieve a 30% gross margin overall. Now obviously, Stadco has kind of thrown a monkey wrench in that. But in the past, I believe Ranor has achieved that. Is that a number that is still achievable, do you think?
Alexander Shen, CEO
How much of it do we want to talk about publicly? And then these calls are listened to by our customers as well as our competitors, Phil, but go ahead and answer it with that background in mind...
Richard E. Greulich, Analyst
Phil, could you take the handcuffs off your mouth now?
Phillip E. Podgorski, CFO
It's like duct tape, I believe you just apply it. To address the question differently, we definitely operate as a defense contractor. We understand that we must comply with the FAR and, as part of that, the CAS accounting. Consequently, we recognize that there are restrictions on the amount of margin we can incorporate into our defense contracts. As Alex mentioned earlier, we are indeed in compliance with that. Therefore, we are facing downward pressure on each contract. The goal for Stadco is to continue replicating the achievements we have made at Ranor, aiming for the same margin drop-through we experience at Ranor.
Alexander Shen, CEO
I think, Richard, one of the things that we can talk about and should keep in mind is we need to earn that respect and earn that right and earn that ability to secure a higher-margin business. So it's easier to justify a supplier that's 100% on time and has gotten awarded for 100% on-time delivery, 100% quality for 4 years in a row, 5 years in a row, 6 years in a row, continually showing gold and gold medal winners, whatever the classifications are and make it easier on the client to say, I want this guy.
Richard E. Greulich, Analyst
Yes. Because it's not just a matter of you earning the higher margin, but because of your performance, you're allowing the entire operation to be executed more efficiently and more profitably.
Alexander Shen, CEO
They lose less by paying us more. Correct. Yes. So hopefully, I'm answering your question with more color and not really point-blank talking about a number, which I'm trying to shy away from a little bit. Thank you for your patience with me.
Operator, Operator
And we have a follow-up from Ross Taylor.
Ross Taylor, Analyst
Having spent time long ago in the defense business, some of this conversation makes me very nervous, actually.
Alexander Shen, CEO
Thank you.
Ross Taylor, Analyst
It's quite unusual for me to express that. Can we assume that the contracts we’re discussing are primarily linked to the Stadco operation? What portion of the struggling business is currently associated with Stadco? We understand that your relationship with Electric Boat and the subspace is quite unique. How much of what we're evaluating here relates to the two main programs you have in Stadco?
Alexander Shen, CEO
So we're talking about the loss leaders, right?
Ross Taylor, Analyst
Yes.
Alexander Shen, CEO
Okay. Yes, predominantly Stadco. I think I lost the thread of the question. I thought it was how much we can do with it.
Phillip E. Podgorski, CFO
We agree with that. Yes, we would be profitable.
Ross Taylor, Analyst
Yes, it would improve your balance sheet. There are many positives that would result from it. While you would need to focus on growing the business to manage the overhead, the balance sheet would be in a better position than it is now. We would no longer face the investor frustration related to the current issues with Stadco. It seems to me that what we're discussing is that...
Alexander Shen, CEO
Absolutely. I'm going to let Phil answer that one because he has a fresh perspective. He joined us recently, so Phil, go ahead.
Phillip E. Podgorski, CFO
So Ross, you're absolutely right. If I look at the balance sheet on Ranor, it's extremely strong. I look at the balance sheet on Stadco, it's not, right? It is certainly drawing cash every single month out of the organization right now, right, except for part of Q4, which was nice to see. The idea is, again, to shed the unprofitable businesses or contracts out of that business...
Alexander Shen, CEO
And improve some of them.
Phillip E. Podgorski, CFO
We aim to enhance certain areas and maintain our focus on the improvements we've already made to foster growth. This approach seeks to stabilize the organization. You mentioned earlier that you invested a certain amount and incurred losses, resulting in approximately $20 million on hand, which could have been allocated for equipment investments. There is a solid recovery pathway for Stadco, operating on a contract-by-contract basis. We've progressed with about 35% to 40% already, and we're continuing to work on additional contracts. Alex and the team initiated this process even before my arrival. It requires time and a systematic approach. We are concentrating on identifying underlying issues and exploring ways to boost efficiencies on each contract for greater profitability while simultaneously enhancing the pricing. So, to answer your question, yes, it certainly pertains to Stadco.
Ross Taylor, Analyst
What you are referring to is whether your partners, like Boeing and Sikorsky, can either ensure that you earn enough from these contracts to reinvest in your business or find ways to do what sub-manufacturers like Electric Boat and the government have accomplished. That industry has shown that they can eliminate potential bottlenecks and enhance efficiency and deliverability. From a defense perspective, the situation indicates a greater need now, and it seems we are looking at major players. It doesn't require a large amount of funding. I recall a time when we had to intervene and manage a situation because another party couldn't maintain their operations. Without their involvement, our most significant program would have failed. It appears that many of these issues could be addressed with relatively modest financial investments. The crucial aspect is discovering a way for them to collaborate with you, understanding that it is often simpler to assist you than to find another partner to take over if you decide to part ways.
Phillip E. Podgorski, CFO
I completely agree with you. And these are discussions internally that we are having all the time and talking about how we move that forward, all right? So we talk about customer engagement and so forth. My gosh, it's extremely nice to see here the amount of time customers spend with us...
Alexander Shen, CEO
The level of customer engagement daily.
Phillip E. Podgorski, CFO
Yes, exactly.
Alexander Shen, CEO
At both subsidiaries.
Phillip E. Podgorski, CFO
Exactly. So I think you're right. I think it's continuing to engage that customer and look for additional opportunities, whether it be customer investments and/or additional contracts. So I agreed with you completely, Ross.
Ross Taylor, Analyst
I'd like to say that this is, to me, the most encouraging call I've heard since I've been involved with this company. I know there are some people in aftermarket trading who are selling this, and I'm trying to understand why they're clearly listening to a different call than I am and hearing a different message. What I hear from you guys is that you are actually becoming a professionally managed organization. Mark mentioned some of this, and it's a huge improvement. I am really excited about what I'm hearing because it points to the direction we want to go, which is not a $5 stock or even a $10 stock, but a multiple of that. I'm hearing you say things that make me think we can achieve that.
Phillip E. Podgorski, CFO
We all want the same thing.
Operator, Operator
And this does conclude today's Q&A session. At this time, I'd like to hand the floor back to management for closing remarks.
Alexander Shen, CEO
Thank you, everyone. Have a great day.
Operator, Operator
Thank you. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. Thank you once again for your participation.