Prepared remarks
Greetings, and welcome to the TechPrecision Corporation Fiscal 2026 Third Quarter Financial Results. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Brett Maas, Managing Director of Hayden IR. Thank you, sir. You may begin.
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, February 17, 2026. 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. For the third quarter, Stadco revenue decreased and operating losses increased. This was due to four factors: one, delay in receiving customer furnished materials, which delays revenue and drops revenue; two, unfavorable project mix; three, higher provisions for projected contract losses; and four, some equipment downtime. Third quarter revenue at Stadco was $2.9 million with an operating loss of $1.2 million. Compared to the same period a year ago, Stadco losses were higher by $0.6 million. Overall, fiscal 2026 third quarter consolidated revenue was $7.1 million or 7% lower when compared to $7.6 million in the fiscal 2025 third quarter. Consolidated gross profit totaled $0.4 million or $0.6 million lower when compared to the third quarter of fiscal 2025. Fiscal 2026 third quarter Ranor revenue was $4.4 million with an operating profit of $1.5 million, in line with the prior year third quarter results. 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 enable us to continuously resecure strategic customer confidence at both segments. Our Ranor segment was very recently awarded a new grant of just over $3.2 million. This brings the total of completely funded grant money to over $24 million from our U.S. Navy submarine programs-related customers. Ranor continues to execute a cadence of sustained procurement, delivery, and installation of new equipment, which enables a reliable, robust, and resilient manufacturing capacity dedicated to submarine programs. This over $24 million represents more than 50% of TechPrecision's market cap of $45.5 million. 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 strong $46 million backlog. This backlog only includes the funded portions of customer purchase orders. We expect to deliver this $46 million backlog over the course of the next one to three fiscal years with gross margin expansion. And now I will turn the call over to our Chief Financial Officer, Phil Podgorski, to continue with the review of our third quarter and nine months ended fiscal 2026 results. Phil?
Thank you, Alex. As Alex just mentioned, for our fiscal 2026 third quarter, consolidated revenues decreased by 7% to $7.1 million compared to $7.6 million in the same period a year ago as revenue fell short at Stadco. And Alex had pointed out what those four factors were. Consolidated cost of revenue increased by 1% or less than $1 million — I mean, $1.1 million. Consolidated gross profit decreased by $0.6 million in Q3 fiscal 2026 to $400,000 due to lower revenue and higher loss provisions at Stadco. Consolidated SG&A increased by 3% to $1.7 million as an increase in stock-based compensation more than offset a decrease in outside professional services. Fiscal 2026 third quarter interest expense was lower as interest costs decreased for term loans and for borrowing under our revolver. Net loss was $1.5 million for the third quarter or $0.15 per share on a basic and fully diluted basis. For the nine months ended December 31, 2025, consolidated revenue was $23.6 million or 4% lower when compared to the same period a year ago. Consolidated cost of revenue was $19.7 million or $2.6 million lower than the same period a year ago due to favorable customer mix and achieved productivity gains at both Ranor and Stadco. As noted, the favorable customer mix and achieved productivity gains increased gross profit by $1.6 million or 7 percentage points. SG&A decreased for the nine months ending December 31 by 1% as lower office costs more than offset higher corporate unallocated expenses. Consolidated operating loss for the nine months ended December 31, 2025, was $0.9 million and decreased year-over-year by 65% or $1.6 million, primarily due to improved margin drop-through. Interest costs decreased by 2%, primarily on lower interest expense under the term loans. And net loss was $1.2 million or $0.13 per share on a basic and fully diluted basis. Now moving on to our financial position. We continue to actively manage our cash flow, as Alex had mentioned earlier. Net cash provided by operating and investing activities totaled $0.6 million for the nine months ended December 31, 2025. Net cash used in financing activities totaled $0.8 million primarily to pay down principal under our revolving loan and term loans. Our total debt was $6.7 million on December 31, 2025, compared to $7.4 million on March 31, 2025. Cash balance as of December 31, 2025, was $50,000 compared to $195,000 on March 31, 2025. Now let's take a little deeper dive into the segments for fiscal 2026 Q3. For Ranor, third quarter revenue was up year-over-year by 1% and overall strong margin growth was evident across all projects, resulting in improved margin drop-through, which contributed $1.5 million in gross profit for the quarter. Stadco Q3, as Alex had mentioned, revenue decreased by $0.3 million compared to the same period last year, primarily due to delay in receiving customer furnished materials, unfavorable project mix, and some equipment downtime. Stadco additionally experienced Q3 year-over-year gross margin decline as gross profit decreased by $0.6 million due to lower revenue and higher provision for contract losses as the company continues to face headwinds in finishing out unfavorable legacy contracts, underpriced one-time contracts, and specific first article part numbers. As Alex noted, we continue to actively work with our customers on these contracts to recover and new pricing. With that, I will turn it back over to Alex.
Thank you, Phil. In closing, 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 structural 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. Tech Precision is proud and honored to serve the United States defense industry, specifically naval submarine manufacturing through our Ranor subsidiary and military aircraft manufacturing through our Stadco subsidiary. We aim to secure and maintain enduring partnerships with our customers. As noted earlier, the total of completed funded grant money of more than $24 million from our U.S. Navy submarine programs-related customers reflects this strong partnership. This commitment represents more than 50% of TechPrecision's market cap of $45.5 million. Overall, at both the Ranor and the Stadco subsidiaries, we continue to see meaningful opportunities in our defense sectors as evidenced by the strength of our backlog. And at Ranor, this is also further evidenced by the strength of our completely funded grant money. We are encouraged by the prospects of growing our revenue and increasing profitability in future quarters. We are showing progress. We have more work to do with our Stadco subsidiary to get it into the black. We are targeting to build and sustain a trend. Operator, please open the line for Q&A.
Questions and answers
Your first question is coming from Ross Taylor.
Alex, can you guys address how much more in the way of bad contracts, first items or whatever we have left to work through, particularly at Stadco to get to where we can see the benefits and fruits of these contracts, which appear to have some significant value, but have yet to really generate much in the way or quite honestly, anything in the way of earnings?
Well, let me parse that question and answer it in two chunks. So we have the same concerns. How much more is left on these legacy contracts that are legacy repeating part number contracts or the legacy one-time underpriced contracts? How much more is left? That answer comes back in the form of working through both the operation sales as well as finance as one team to make sure that we capture all that in the expected contract losses. So Phil and I, with our people collaborate to identify that to the best of our ability and forecast that to make sure that we understand how much loss is left. So that's one piece of the answer, right? Ross?
Well, I'm trying to get a handle of do you have a couple of million dollars left? Do you have $5 million left? What is it? And when do we see breaking through getting past the bad contracts to where we get to contracts that are going to allow us to make money, perhaps more reflective of the current operating environment, operating costs and the like.
I can't provide an exact figure because there's also a timing aspect. We're waiting on certain decisions that are not entirely under our control, and we need to coordinate with customers to determine when those decisions will be made. The important thing is that, regardless of the number, we aim to capture the full impact of these figures. We want to account for all the losses. When we set a loss reserve for projected contract losses, it covers everything up until the point of shipping and completion.
Yes, I agree. Ross, I’ll provide some clarity on the quarter and our experiences. Two of our contracts, which involve long-standing customers, required their agreement on some items. Initially, we had strong indications that they would accept these items. However, we were surprised when they requested additional rework on these legacy items. We had hoped to resolve this matter, but instead, we had to adjust our estimated contract to include additional hours for the rework needed. In relation to those contracts, we hope that the provisions for losses we accounted for this quarter will cover these issues. These parts are very specific and require exact measurements. While I can't guarantee that these matters are completely resolved, I believe we have made sufficient provisions for them at this point. We are addressing them one at a time and are getting closer to a resolution. I hope this helps answer your question.
Not really. Yes, I mean, the concept of the business is to make money doing what it does. Obviously, these are bad contracts. It doesn't appear that you have the same relationship in Stadco as you have in Ranor with your customers because they're not allowing you to make a profit, which is problematic. There has to be a growth plan beyond just taking what's available in the current backlog and current part numbers. What are you doing to drive revenue? We're stuck in the $7 million to $9 million per quarter range. It's not enough to achieve profitability. It's clear to me, and I believe to others who have followed the company for a while, that you need to increase the top line and start producing numbers several million higher than last quarter to generate meaningful free cash flow that would help pay down debt and repair the balance sheet. What's the plan? I can't believe the Board is satisfied with this situation of fluctuating between losing $0.15 and making $0.10 per quarter. There must be a strategy to drive more business through the facility. I can't imagine that if one walks through the plant floor, we see everyone working at full capacity all the time. So what is being done to find new business that can be priced better?
We have identified new business opportunities and are adding to our backlog with better-priced projects. Some of these have already begun shipping on new part numbers for us. Additionally, we are working with our legacy customers, the largest of which is Sikorsky. Sikorsky has shown us the courtesy of allowing us to be profitable in our dealings. This collaboration is crucial because Sikorsky accounts for more than 50% of our volume. Our strategy involves partnering with our major legacy customers to ensure profitability while also pursuing new customers with part numbers where we have successfully demonstrated our capabilities through multiple phases of production and established long-term programs. This is our plan moving forward.
When do we see the benefits of this? As I said, I mean, we've been stuck in the $7 million, $9 million; $7 million, $9 million kind of range. When do you see us breaking out of that $7 million to $9 million a quarter revenue run rate range?
That's a good question. I hesitate to answer because this quarter has been unexpectedly bad and worse — much worse than our expectation. And we were surprised by, like Phil was saying, a couple of customers that didn't play ball. That was a surprise. I don't think we're going to have that similar type of surprise this next quarter ending March 31.
Okay. So that could allow us to reach the high end of the $7 million to $9 million range fairly easily. My guess is if you account for what you were short to reach the middle of that range, you will hit the high end. When do you expect us to move beyond this low level? When can we move past the $7 million threshold? It seems that with revenues of $9 million, $10 million, or $12 million, we can generate good profits. In fact, we could do quite well. But when will we reach a level where our lower quarters are around $9 million and our stronger quarters exceed $10 million?
We're working on that. I'm pretty sure whatever answer I try to give is not going to be great. I don't know. But I know that what I am...
Not going be informative.
Well, informative or not informative, the goal is to first get us into 9 plus and 10 would be good. When would I do that? And can I please have a trend established. And that's really the question we're both wanting to get answers from me and Phil, and we're wanting to get these answers from ourselves as well to do the right things when nobody is looking or questioning. Our results are not showing that yet. Nobody is happy. And I'm ready to cook myself. But that does not stop me from doing the right things and moving things forward. Our plan is solid. We need to eliminate the risks that bite us. We'll continue to do so. And we are working together with our customers that we want to be partnered with for the foreseeable future decades.
It's clear that shareholders are facing a critical situation. If you consider what the Navy has contributed and account for the costs associated with Stadco, you'll find it's roughly equal to the company's market cap. Over the last few years, not much value has been created. I hope that in the upcoming quarters, you will focus on adding value and advancing the company to the next level. I'll allow others to ask their questions now.
Your next question is coming from John Brandberg.
I'm assuming that the product mix issue is isolated to Stadco, but I don't want to assume anything. So can you expand about the problems with product mix? And given the fact that you work with customer design products, how much of that is customer controlled or customer related? And how much of that is management related?
Go ahead, Phil. You go first.
Thank you, John. To directly answer your question, yes, it is related to Stadco. We are heavily dependent on materials provided by customers, and we faced significant delays in receiving those during the quarter. This, unfortunately, impacted our facility's utilization. We reassigned some individuals to other contracts as we adjusted our operations, but some of these contracts are not as profitable, especially the newer ones like Sikorsky. We saw a transition from more profitable to less profitable projects during the quarter, which is unfortunate. The delays in customer-furnished materials were a key factor in this shift, leading to stronger sales and revenue from the underperforming contracts.
I'll add to that a little bit more and just say that we are custom and precision fabrication and custom and precision machining. So that means we don't have a mass production line. We make things by hand one at a time. So with each piece, the situation is you make it one piece at a time. There are certain factors that go into it that may affect that one piece that could be mitigated at the second piece. It's not a mass production line. There's deviations between the two. They might be the same part number. They might be the same operators or they might not be. There are certain factors that change. But since it's not a production line, there's more factors for change than there are in a production factory that just makes one part number.
Are you making any changes to your contracts? It seems unusual to suggest that Sikorsky is allowing you to make a profit. I believe it's crucial for you to be able to achieve profitability. It's been mentioned that Sikorsky is viewed as a better or more collaborative customer. This raises the question about the other half of your revenue that comes from non-Sikorsky sources. Given your focus on high-precision manufacturing, if one customer doesn't meet your needs, it isn't easy to switch to another. You may need to either adjust your contracts or strategically choose customers who will enable you to be profitable. As you work on turning the company around, it's important to ensure that you have better control through contracts or make smarter decisions with the other half of your customer base.
That's exactly right. We have to choose our customers and choose the ones that we can work with better to get better results for our shareholders. Exactly.
You have something unique to offer, and while I understand the idea that the customer is always right, that's not always the case. You provide a specific skill that greatly impacts the development of key defense products, and not everyone can do what Stadco does. Therefore, it's important to be stringent with contracts to ensure your protection. If your customer fails to deliver products on time, they should face penalties or there should be fee adjustments. Your contracts should include mechanisms that safeguard you in such situations. Do you currently have these protections in place? I'm not asking for detailed specifics, just whether there are any protective measures that support you when things are out of your control.
It's going to be difficult for me to answer because so much of it is very particular and specific. The answer is not 0. We cannot survive with 0 contractual protections. We agree, and those contracts — new contracts coming up, we cannot accept them if they are detrimental and harmful to Stadco or to Ranor. We need to function both the same and not harm the companies because the customer wants it to be so. And you are correct. The customer is not always correct. The customer is not always right. There are certain protections in place? Yes. Should we strengthen them going forward? Yes. And should we deselect some areas and not go into them? Well, that depends on how much a chosen customer wants to play ball. If they don't, we do walk, and we have walked. And that's a choice that we need to make.
I understand Mr. Taylor's comments about revenue, and naturally, everyone is eager to see the company move beyond the current $7 million revenue situation. Given your operations at Stadco and Ranor, which focus on high precision, how do you approach scalability? It's not as simple as adding more resources to increase output. I’m struggling to see the scalability challenge because it’s clear that increasing the top line is a goal. However, considering the specialized nature of your work and the costs associated with talent and machining, what is your current operating capacity? Are you functioning at 50%, 70%? Is there potential for growth in revenue if customer demand exists? I find it difficult to understand how you can scale, given how specialized your processes are.
So there's a process that's specialized and it's specialized for each part number, right? So then the key is going to be for that part number that we specialize in to keep repeating. So we make this part number again and again and to have a number of these repeating part numbers and to really eliminate the one-time orders because that's the thing that takes a lot of time — the first time or the first article. If there are no follow-on articles, that's the kind of business that we need to really get away from, so we can have some kind of scalability. So that when we do repeat a part, we've already learned the process, and now it's going to be the next tranche of the same part number. We're refining the process that we already established first article protocols on and that we passed first article inspections by the customer on. And then now we're into follow-on orders and into programs of record that are going to exist for not just years but perhaps decades. There are some programs that we are leading ourselves into and cross-utilizing the members between Stadco and Ranor to gain a foothold to let Stadco also gain a foothold through that cross-pollination between the two companies. That is — so eliminating one-time projects and going towards repeating part numbers that have longer legs. That is one very big key strategy. It's not a big secret, but it takes a while. We need partnerships with customers that have the long legs on programs of record. So that's the ones that we are choosing carefully, and that's the ones that also are willing to choose us, both at Ranor and at Stadco. And that's what makes sense to us. We're so small. We can only do what we can do and do the best we can at it and add more to it and scale up. And the scale-up isn't going to be 10x. The scale-up is going to be a gradual scale up. But as we all wish to achieve, we want this — the lowest water level to rise beyond what we have today. I am not very happy at all with our performance today.
Thank you. That concludes our Q&A session. I will now hand the conference back to Alex Shen for closing remarks. Please go ahead.
Thank you, everyone. Have a great day.