TPCS Earnings Transcript

TPCS’ transcript is out. Notes below. After a COVID-impaired quarter the September quarter has started with $4M in July orders.

Management guided to revenues and EPS increases for the rest of the year (along with the goal of obtaining 10+ years of recurring full-capacity business).

Transcript quotes (from CEO Alex Shen unless otherwise noted):

“Through technical excellence, custom know-how and custom build approaches, we believe that Ranor has established a dominant incumbent position with the specific projects I just mentioned.”

“These same part numbers are required for the next shipset. Demand signal for these same part numbers will filter down to the supply chain. The next round will not have learning curve related negative impediments. Given our current backlog and the number of projects on the manufacturing floor, we expect overall improvement in revenues and margins during the remainder of our fiscal year.”

“The company’s sales order backlog was $14.4 million on June 30, 2020, compared with $16.8 million on March 31, 2020. However, we had a very strong month of July, booking over $4 million”

“…order flow from prime defense contractors remained strong. Our industrial sales were down $0.8 million.”

“The company has access to additional capital via the revolver loans should we determine is necessary to bolster liquidity.”

“Aaron Warwick

Has the $100 million opportunity increased since the last conference call?

Alexander Shen

It has not gone below.”

“Mark Gomes

…has your level of excitement changed at all since the last time we spoke?

Alexander Shen

My level of excitement has absolutely not decreased.”

“Thomas Sammons

…I don’t see a large incremental SG&A expense with increased sales.”

“Alexander Shen

Absolutely. Our backlog contains Columbia class without a doubt.”

“Ross Taylor

…We understand COVID has held things up. We watch some of your competitors and we watch GD and listen to their comments, and we see where this is going. We see money is starting to flow in for both Virginia and Colombia, things are going to start to ramp. I mean you’re literally hearing talk about the fact that there could be a shooting war against China… (and) we’re well behind the curve on submarines. There’s a lot of positives in that business… So I just wanted to bring it out and let investors understand this is a capability you have.”

“Alexander Shen

So the view that we have of going from quarter-to-quarter when period of performance spans more than a quarter, sometimes it spans more than a year. It’s a little bit frustrating to all of us when we’re looking at it quarter-to-quarter… It would be much easier to look at without the lumpiness.“

“Alexander Shen

So we were requested to stay open by the Navy as well as the 2 shipyards and every single one of our primes requested the same thing.”

“Alexander Shen

So the commercial items that we’re buying impacts certain things. So cleaning supplies, at one point in time, there was a lack of cleaning supply. So this is those cleaning supplies aren’t just used for cleaning. There are certain other things that we do with them. So we all have to find different ways to alternatives to work around the lack of essential items that are non-defense rated, but commercial, but that are required to create these defense-related components. So I think a lot of time is spent in trying to figure out how to meet the schedule and still get all the materials necessary, including all the commercial materials necessary. Perhaps that’s too much of an operational answer. But the COVID-19 impacts are very far reaching. I’m just very grateful that we were able to stay open and retain our workforce and keep the place running. So we can have a chance to reach our goals.”

“Alexander Shen

Ranor is very good at doing complicated parts that are high-specification driven difficult parts and large parts. We don’t make small widgets. There’s large complicated parts that need to meet a great number of specifications. And there are 2 plants on site. One is a welding fabrication type of plant, and the other one is a machining type of a plant. We needed to take those capabilities and find a set of customers that would not just be furnishing work for a job shop, one whose — but really over an extended period of time provide some type of a base load that could be counted on. So in looking at that, the United States government is the biggest consumer in the entire world. And the defense industry happened to be a piece of what Ranor was providing. So as we look through — Tom and I look through the customer base, it looked to be the best recurring opportunity…

…when we look at the defense industry and the long-lived nature of the Virginia-class attacks of Marine, we’re currently on Block 5. There has been a tremendous number of these built, and then there’s going to be block 6 and Block 7, that’s also already in the public eye. So that’s public information. The opportunities continue throughout…

…Columbia class is the replacement of current Ohio class. There are 12 boats scheduled for Colombia class, and that opportunity spans over 3 decades of work.

We saw early on that the capacity needed to support those 2 classes of submarine was not completely supported by the shipyards themselves any longer. There was indication of inclination of outsourcing, which now has been pretty publicized. So in essence, the repetitive nature of incumbent part numbers is very attractive.

And the longevity of the intended baseload driven by Virginia class and Columbia class is very attractive, more attractive than any other opportunities over the long term.”

“Unknown Analyst

Excellent. That’s very helpful information. And then one last question for me, and it may seem obvious. But are you confident that if you continue to execute with your defense customers that TechPrecision will become a profitable company that will generate significant revenues and cash flows in the years to come built off of that recurring revenue base from your defense customers?

Alexander Shen

Yes, I am confident… on the long-term possibilities but also on the short-term to be able to recover the company”

“Alexander Shen

We changed Ranor to become more stable, and we see better stability and the ability to make money. How much money remains to be seen. But the opportunity is huge.

Unknown Analyst

Awesome.”

“Alexander Shen

Our customer base, the defense centric customer base, as we’ve seen in all the public information available, there is much more outsourcing that is happening from both shipyards, Newport News as well as Electric Boat. The — they’re actually outsourcing what they have built in-house before. On many part numbers, an incredible amount.”

“Alexander Shen

So I don’t see any impediments to our growth because this is the right track that we believe in. The view that we have is a much more long-range view over a number of years. For example, when you go into a block of production for Virginia class that would span a decade.”

2 thoughts on “TPCS Earnings Transcript

  1. Hi Mark,
    I met you in August 2016 in Miami while walking in the park. You were bullish on ZAGG at the time. Are you still excited about ZAGG?

    Your SMSI pick has been great. In at $1.88 for 1k shares. Looking at TPCS and WTHR after listening to podcast.

    Keep up the great analysis! Thanks. Tom

    Like

    1. Hey Tom, ZAGG doubled in a couple months and I got out. Haven’t been a fan since (actually got bearish). In any case, I generally don’t provide my sentiment on demand or I’d have a new full time job 😂 Instead, what’s in my tracking sheet provides insight into my top interests. One of my last blog posts explained how to find and take advantage of it via my real time posts (free for forever, as promised). Check it out!

      Like

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