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Edited Transcript of TPCS earnings conference call or presentation 13-Nov-19 9:30pm GMT

Q2 2020 TechPrecision Corp Earnings Call

Westminster Dec 5, 2019 (Thomson StreetEvents) -- Edited Transcript of TechPrecision Corp earnings conference call or presentation Wednesday, November 13, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander Shen

TechPrecision Corporation - CEO & President

* Thomas C. Sammons

TechPrecision Corporation - CFO

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Conference Call Participants

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* Howard D. Brous

Wellington Shields & Co., LLC - Broker

* Mark Gomes

* P. Ross Taylor

ARS Investment Partners, LLC - Partner

* Richard E. Greulich

REG Capital Advisors - President & CEO

* Brett Maas

Hayden IR, LLC - Managing Principal

* Maj Soueidan

Geoinvesting, LLC - Co-Founder

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to today's call. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, Brett Mass of Hayden IR. Sir, the floor is yours.

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Brett Maas, Hayden IR, LLC - Managing Principal [2]

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Thank you. On the call today 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 represents management's estimates as of today, November 13, 2019. 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?

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Alexander Shen, TechPrecision Corporation - CEO & President [3]

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Brett, thank you. Good day to everyone, and thank you for joining us. Our second quarter of fiscal year 2020 was highlighted by the start-up of multiple new projects, following the addition of $11 million in new sales orders since March 31, 2019. Our backlog at September 30, 2019, totaled $16.4 million, an increase of $3.8 million compared to $12.6 million at March 31, 2019.

With the new projects coming online in the second quarter, we expect to operate above current revenue and operating income levels and return to profitability during the second half of fiscal 2020.

I would now like to turn the call over to Tom Sammons, who will tell us more about our second quarter financial results. Tom?

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Thomas C. Sammons, TechPrecision Corporation - CFO [4]

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Thank you, Alex. Net sales were $3.1 million for the second quarter of fiscal 2020 compared to $3.6 million in the second quarter of fiscal 2019. As Alex commented, our backlog remains strong as new orders for components continue to slow down from prime defense contractors.

Cost of sales for the second quarter was $2.7 million compared to $2.5 million for the same quarter the period a year ago. Our second quarter financial results were impacted by under-absorbed factory overhead and increased costs associated with the loss provision for certain projects already in progress.

Selling, general and administrative expenses decreased by $10,000 in the second quarter. Interest expense and debt cost amortization was lower in the second quarter ended September 30, 2019, and will continue to decrease barring any indebtedness as we amortize debt principal to maturity.

Net loss for the second quarter ended September 30, 2019, was $291,000. For the 6 months ended September 30, 2019, net sales decreased by $312,000 or 4% to $7.4 million when compared to $7.7 million for the 6 months ended September 30, 2018.

Our cost of sales for the 6 months ended September 30, 2019, was $5.9 million compared to $5.6 million for the 6 months ended September 30, 2018. Gross margin was 20.6% for the 6 months ended September 30, 2019.

Total SG&A expenses for the 6 months ended September 30, 2019, increased slightly by approximately $1,000, due primarily to an increase in outside advisory services, almost entirely offset by a decrease in compensation expense.

Interest expense decreased by 20% for the 6 months ended September 30, 2019, and should continue to decrease as we amortize debt principal. For the 6 months ended September 30, 2019, our net loss was $70,200 compared with net income of $345,100 for the same period a year ago.

Moving to the balance sheet. At September 30, 2019, we had $2.6 million in cash and working capital was $6.2 million. Cash provided by operating activities was $0.9 million for the 6 months ended September 30, 2019. Net debt at the end of the second quarter of fiscal 2020 was $1.3 million.

With that, I will now turn the call back over to Alex. Alex?

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Alexander Shen, TechPrecision Corporation - CEO & President [5]

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Thank you, Tom. TechPrecision remains proud and honored to serve the United States defense industry, specifically naval submarine manufacturing through its Ranor subsidiary. We continue to see meaningful opportunities in our defense sector, primarily in the nuclear submarine business for the next 12 months and beyond. I am excited with the start-up of multiple new projects.

I would now like to open up the call for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Howard Brous with Wellington Shields.

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Howard D. Brous, Wellington Shields & Co., LLC - Broker [2]

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Alex, since I've been involved in the company for more than 5 years, the first time I've seen the backlog jump as much as it has. So one, congratulations. And two, it is exciting for me to hear you as excited as you are because I've never heard that on any conference call that I've been on with you. So I'm very happy to hear on both. Could you comment as to what the backlog is as of today, is that possible?

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Alexander Shen, TechPrecision Corporation - CEO & President [3]

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Tom?

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Thomas C. Sammons, TechPrecision Corporation - CFO [4]

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It's not possible only because we net our POC revenue against the backlog, so we have to understand how much we've realized against the backlog, and we don't have that number yet, but we have not picked up additional orders in the quarter -- in the month.

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Howard D. Brous, Wellington Shields & Co., LLC - Broker [5]

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So additional orders beyond the $3.8 million backlog. Okay. Secondly, I just want to confirm that Block 5 is effective and that the government has funded it. Is that a correct statement from your knowledge, Alex? It's TED Summaries.

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Alexander Shen, TechPrecision Corporation - CEO & President [6]

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Howard, I think I heard about 3 questions in there. So let me parse this thing.

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Howard D. Brous, Wellington Shields & Co., LLC - Broker [7]

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Sorry.

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Alexander Shen, TechPrecision Corporation - CEO & President [8]

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It's okay. Ross does this to me all the time.

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Howard D. Brous, Wellington Shields & Co., LLC - Broker [9]

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Don't worry. He is your next questioner.

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Alexander Shen, TechPrecision Corporation - CEO & President [10]

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So the -- I think the first question was on Block 5. Block 5 is a viable program, and it is going on. I think your next question was on funding. I can only refer you to publicly available information.

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Howard D. Brous, Wellington Shields & Co., LLC - Broker [11]

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No. According to the public information, it has been funded for a total of 9 submarines plus one additional?

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Alexander Shen, TechPrecision Corporation - CEO & President [12]

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I believe that you're quoting some here say that is not corroborated by any contracts.

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Howard D. Brous, Wellington Shields & Co., LLC - Broker [13]

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No, there was a public announcement by the Department of Defense.

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Alexander Shen, TechPrecision Corporation - CEO & President [14]

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That's not a contract release announcement.

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Operator [15]

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And our next question comes from Ross Taylor with ARS Investment Partners.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [16]

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So Howard's pressing. Okay. Let's deal with the one thing that really jumps that I haven't seen out of a company -- this company since you've been running it, Alex, which is the fact that you had some cost issues on a project loss. Can you talk to us about what that is? How much that loss was? And will that loss have an effect on the profitability long term of the Virginia Block 5 contracts?

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Alexander Shen, TechPrecision Corporation - CEO & President [17]

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Well, okay. So I think they were 5 questions in there. Let's deal with the first one. Can I talk to the losses? Yes.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [18]

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Yes.

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Alexander Shen, TechPrecision Corporation - CEO & President [19]

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The losses were -- the losses were due to the start-up of multiple new projects, exclusive to the new projects and not for repeating part numbers whatsoever.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [20]

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Are they costs that will -- or were they basically onetime costs that are going to be effectively recovered or not impact future profitability and whatever those? It sounds like they were basically kind of almost spec built or determine whether you could build something type projects as opposed to things you've already been specced in for?

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Alexander Shen, TechPrecision Corporation - CEO & President [21]

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They are not things that we've built before. They're brand-new part numbers. Generally speaking, I would like to think that I'm going to go after business that repeats the part numbers over time rather than just onetime deals. So that's how I would characterize those as really start-up costs.

And do I expect that the losses will repeat? Well, I don't think so. I would point out that our finance group has reserved for these losses already.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [22]

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So all the damage that can be -- you expect to be done by these projects is in the numbers that you released today?

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Alexander Shen, TechPrecision Corporation - CEO & President [23]

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As far as I know, yes. Absolutely.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [24]

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Okay. Good. Because as I said, I think and Howard was getting to, it would appear that with the not official release of an order, but the statement that the Navy and General Dynamics have reached an agreement to fund 9 boats plus an option that you were set that this -- the Virginia Block 5 within a few weeks will be set up to build what appears to me to be probably 2 years of 3 boats. And then as the Ohio -- the Columbia class comes on board, go -- revert back to 2 boats built a year along with a Columbia class. And so we really have started that event when it is officially signed is a watershed, is it not for this company?

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Alexander Shen, TechPrecision Corporation - CEO & President [25]

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I don't think I can comment intelligently on that because you're talking about the build cycle. But we're not on this -- it's a little -- a little difficult to answer the specificity of your questions...

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [26]

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What I'm actually getting at is -- what I'm getting at, Alex, is it would appear that from what we have seen and what you have said, you came out a few calls ago and talked about having a $40 million to $50 million annual run rate at $80 million to $100 million 2-year projected revenue numbers. It's my assumption from everything I've read that, that number is based -- that $80 million to $100 million number is based on largely on, if not fully on the emergent of the Virginia Block 5 from the drawing board into production. And that -- it's the revenues that you would expect -- TechPrecision would expect to be receiving as that project rolls forward in the next 2 years, is that not correct?

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Alexander Shen, TechPrecision Corporation - CEO & President [27]

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So the numbers that you're talking about are the opportunity numbers, not the annual revenue numbers, just to be clear. The brunt of what we do in naval submarines is going to be Virginia class based as far as volume goes and Columbia class as well. But Columbia class has less volume, but it's a much bigger submarine.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [28]

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Right. And it's also out? Is it not in time because the Columbia class is not on the ways, nor is it projected to be on the ways in the next year, I believe?

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Alexander Shen, TechPrecision Corporation - CEO & President [29]

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So there's the build cycle of the submarines, and then there's the ordering cycle for components, which is probably long-lead ordering cycle is way ahead of the build cycle. Right.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [30]

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Okay. And so basically, these things are coming together at this point in time and that it would seem to me that with the company operating basically with a neutral net debt position or new neutral net debt position with your backlog building, with your historic operating margins being significantly higher than those you achieved in the quarter that just ended, I would expect that we're going to see some pretty substantial increase in free cash flow. And so rather than ask you about that because I know you'll just not answer it, what I'm going to say is that it's -- as one of your larger shareholders, it's our position that, that assumption warrants the company, the Board and others coming to us as investors and allowing us to understand how capital is going to be returned to shareholders through this process? Because as we see it, this is a game-changing event. Getting this contract signed substantially derisks the outlook for TechPrecision.

You've historically been an exceptionally good operator. I would expect that you will continue to be a good operator. And therefore, I would suspect that we should be looking at the situation with this company in the next few years is able to generate what would likely be a 20% to -- based on today's stock price, a 20% to 30% free cash flow margin against the stock price. And in light of that, I would be hoping that there would be plans to -- and there would be -- shareholders would be alerted to them that you're going to be returning capital to us in a meaningful way in coming years because I see the way the stock trade, and it simply trades as though the bulk of your holders do not understand the business model.

And I think that's a problem because when you don't communicate to them, and I know that -- I know why you are -- you cannot communicate. But this stocks is exceptionally volatile, and there's no real need for it. This should be one of the least volatile names going forward. You have such visibility looking out over the next 4, 5 -- I mean, this contract you're talking about is 4 fiscal years. And I seriously got having been in the defense business at one time, I seriously doubt you don't have a damn good idea what your revenues are going to come off of these boats. Because I'm pretty sure they've already prepared everyone for what they're going to get. And you have been operating inefficiently because I assume you're carrying extra costs to be ready to produce when you got these orders, correct?

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Alexander Shen, TechPrecision Corporation - CEO & President [31]

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We have extra capacity? Yes. Are we operating inefficiently? I would say we're not operating inefficiently. I think we're pretty efficient.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [32]

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Well, I would say you're efficient in execution. What I mean by inefficiently is you probably have more bodies hired than you need for the current demand because -- and we're seeing this in some of your compatriots who are trying to hire people to fill slots. If you put off hiring people until you actually get the fiscal contracts, you might not be able to actually hire the people you need. And given your reputation and ability as an operator, my guess is you do not want -- you did not want to take that as a risk?

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Alexander Shen, TechPrecision Corporation - CEO & President [33]

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Well, we balance that risk against the lumpiness. So when the demand sometimes spikes for a little while, I need to have the bodies to cover that demand. And then on the other hand, when it dips into valleys where there's just -- the business is just naturally lumpy, then I don't want to have too many bodies that I have to carry around for an extended period of time. So it's a balance that we just need to watch on a pretty, very frequent basis.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [34]

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But you're comfortable that you're adequately staffed to perform the contracts to which you were receiving -- of which you were receiving?

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Alexander Shen, TechPrecision Corporation - CEO & President [35]

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I'm comfortable that I have the -- I'm comfortable that I have the capability to flex to meet demand. That's what I'm comfortable with. At any given point in time, it goes up and down. So I'm comfortable that we have the capability to flex to that adequately to meet customer requirements.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [36]

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Good. And as I have said, I'll step back out of this, but I do believe that it's -- given the paucity of information we often get from you, I believe that it's important that the Board develop a return of capital strategy for investors because they have publicly stated in previous calls. They do not believe this company warrants -- a company of this size warrants being public, and I would like to make sure that as we work through this scenario, that the shareholders are rewarded for it. And the best way to reward us is to basically return substantial amounts of your free cash flow to shareholders through a buyback, and there is precedent in your industry. Hexcel publicly states that they will return 90% -- well, 50% of their free cash flow to shareholders in the buyback each and every year. So there are people in the space who do it.

And I believe that it's important that we get into that situation because it might help smooth out some of the trading volatility where people who don't understand the long-term outlook for this business, feel compelled to sell stock aggressively, which causes others who might be interested to walk away because they're afraid of the volatility. And I'll step back in the queue.

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Operator [37]

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(Operator Instructions) And our next question comes from [Aaron Warwick], with ES Capital.

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Unidentified Analyst, [38]

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Looking forward with these increased backlog numbers to future quarters and kind of referring to what Ross said about that $80 million to $100 million, which if I remember correctly, you changed later to just $100 million. I wanted to ask you about that. Alex, is that number that you're looking at the work that you're targeting, is that $100 million still what you have in mind? Has that increased or decreased at all?

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Alexander Shen, TechPrecision Corporation - CEO & President [39]

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That has not decreased. That opportunity is there.

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Unidentified Analyst, [40]

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Okay. Has it increased at all?

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Alexander Shen, TechPrecision Corporation - CEO & President [41]

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I'm telling you, it hasn't decreased.

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Unidentified Analyst, [42]

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Okay. Is any of the backlog that was reported as of September 30, does that include any of that $100 million?

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Alexander Shen, TechPrecision Corporation - CEO & President [43]

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The opportunity remains as far as the dollar value. I have to be very careful in answering these questions because I've been pretty much point-blank told by our direct customers to be very careful.

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Unidentified Analyst, [44]

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Okay. Well, I respect that. Last thing I want to do as a shareholder is get you in trouble that just gets me in trouble. You had also mentioned on previous calls about pursuing work with carriers, and it looks like the Navy is moving forward with some of that as well. Is that something you're still pursuing or have you obtained any of that work?

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Alexander Shen, TechPrecision Corporation - CEO & President [45]

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In I think 2 or 3 calls previous, I had already alluded to the fact that carrier is now part of our business.

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Unidentified Analyst, [46]

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Okay, good. And it still remains so. On the international front, I'm just wondering, I asked about it, there was an article before the last call. And I know you couldn't talk about that much, but it made me think about it more here. International opportunities, especially here relates to submarine tube work. It sounds like some of the tube work could be available for competitors of a company that said they were no longer going to be working on that. Are you pursuing any international opportunities like in the U.K. or elsewhere?

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Alexander Shen, TechPrecision Corporation - CEO & President [47]

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I am absolutely restricted from any comment whatsoever on that topic.

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Operator [48]

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And our next question comes from Richard Greulich with REG Capital Advisors.

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Richard E. Greulich, REG Capital Advisors - President & CEO [49]

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I wasn't able to hear clearly the answer to the question of regarding what the backlog currently is. And I understand not being able to calculate that, but let me rephrase the question. Have you received continued new orders since the last quarter ended?

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Alexander Shen, TechPrecision Corporation - CEO & President [50]

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Have we received new orders since the last quarter ended?

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Thomas C. Sammons, TechPrecision Corporation - CFO [51]

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Yes.

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Richard E. Greulich, REG Capital Advisors - President & CEO [52]

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Yes. And have they run at the same rate as the prior quarter?

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Alexander Shen, TechPrecision Corporation - CEO & President [53]

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I can't tell you that right now.

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Richard E. Greulich, REG Capital Advisors - President & CEO [54]

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Okay. Could you tell me what the capital spending program looks like over the next 1 to 2 years?

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Alexander Shen, TechPrecision Corporation - CEO & President [55]

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Due to competitive reasons, I'm going to not answer that question.

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Richard E. Greulich, REG Capital Advisors - President & CEO [56]

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Okay. Could you tell me what you expect the employment level to look like in the year and then 2 years from now?

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Alexander Shen, TechPrecision Corporation - CEO & President [57]

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That, again, is going to be in the category of a competitive nature. Our competitors are all private companies, and we're the only public one. So we're all watching each other like hawks. So I'm going to decline to answer that question.

I would comment to let you know that I watch my employment levels carefully, so I can match them up with the up and down, fluctuating lumpy demand, and I do not, as a rule, miss customer requirements.

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Richard E. Greulich, REG Capital Advisors - President & CEO [58]

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Yes. That intrigued me. Like, could you describe the mechanics of how you're able to flex up and down your employment?

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Alexander Shen, TechPrecision Corporation - CEO & President [59]

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I'm not going to be able to do that due to the competitive nature of how we do it.

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Richard E. Greulich, REG Capital Advisors - President & CEO [60]

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Separately, could you discuss any nondefense business during the quarter, roughly how much of it was? And then what the outlook for that is?

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Alexander Shen, TechPrecision Corporation - CEO & President [61]

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Let me see here. I might not be able to grab how much of it, it is. But if you use the 80-20, it would be in the minority. So the outlook for that is, opportunistically, we're going to pursue nondefense business. That is our stated objective, and we continue to execute that objective quite well.

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Richard E. Greulich, REG Capital Advisors - President & CEO [62]

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And does it look like there are interesting opportunities to pursue in the nondefense area at this point?

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Alexander Shen, TechPrecision Corporation - CEO & President [63]

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Opportunistically, they land. I am pursuing primarily defense business. This has -- this company has been converted over to a defense-centric business. So if the other opportunities in nondefense match well with our capabilities in defense, we'd be more than happy to take an order. If they don't match, then it doesn't work.

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Operator [64]

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And our next question comes from Mark Gomes with Pipeline Data.

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Mark Gomes, [65]

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Great progress, guys. Just so I'm 100% clear. So we were discussing Block 5 and how it's not been contracted. So that's safe to assume that none of your orders or backlog include any of that, correct?

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Alexander Shen, TechPrecision Corporation - CEO & President [66]

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Correct.

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Operator [67]

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And our next question comes from...

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Alexander Shen, TechPrecision Corporation - CEO & President [68]

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Mark, I need you to repeat that question, please.

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Operator [69]

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And this is the operator. Mark is no longer in the Q&A queue.

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Alexander Shen, TechPrecision Corporation - CEO & President [70]

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Okay. Well, I think what I heard -- this is Alex Shen talking. I think what I heard was do your orders and your production include Block 5? And the answer is, yes, that's correct.

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Operator [71]

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And our next question comes from Howard Brous with Wellington Shields.

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Howard D. Brous, Wellington Shields & Co., LLC - Broker [72]

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Just to clear up one issue. The comment from Commander Danny Hernandez, the Navy spokesman says they have reached a multiyear agreement with General Dynamics and are working to announce a contract by December 31. So just to clear that up.

Secondly, to follow-up Richard's questions and comments. At one point in time, several years ago, you were doing business for Mevion. Are you currently doing any business? Or can you not comment about that with Mevion?

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Alexander Shen, TechPrecision Corporation - CEO & President [73]

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I have been asked specifically by Mevion to not comment on their business.

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Howard D. Brous, Wellington Shields & Co., LLC - Broker [74]

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Okay. That sort of answers the question. And secondly, there was a point in time several years ago that you were manufacturing nuclear casks. Can you comment about that?

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Alexander Shen, TechPrecision Corporation - CEO & President [75]

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That was before my time.

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Operator [76]

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And our next question comes from Ross Taylor with ARS Investment Partners.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [77]

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Okay. So some follow-ups. With regard to the nuclear casks, are you doing or looking at the potential of doing business with the Department of Energy?

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Alexander Shen, TechPrecision Corporation - CEO & President [78]

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With regard to nuclear casks or DOE, overall?

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [79]

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Overall.

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Alexander Shen, TechPrecision Corporation - CEO & President [80]

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Overall, opportunistically, we will take a look at DOE.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [81]

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And what type of products might you supply them?

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Alexander Shen, TechPrecision Corporation - CEO & President [82]

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Ross, just to be very direct. It's not the type of product that we go for, it's really what fits and what they see fit to quote us on. It's more of a passive approach, maybe, but it's not a very laser being targeted on this type of product. It's not a product-oriented approach.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [83]

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So is that -- is your approach with them that they come to you looking for your expertise to see what you can do for them? Or are you going to them with ideas of what you can do, supply to them that they might need?

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Alexander Shen, TechPrecision Corporation - CEO & President [84]

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I do not go to them with ideas on what products. I go to them with capabilities. It's up to them to match the capabilities with the products that they know about what they would outsource. They're not the core customer. So I don't know that much about them internally. And frankly, the opportunity with defense and nuclear submarines is just overwhelmingly large. And that's the space that we primarily live in.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [85]

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Right. Now looking at that, the press release that Howard Brous referenced talks about a 4-year deal. You, in your previous comments and talking about the $100 million revenue base, which you said has not gotten smaller, talk about a 2-year revenue base. If the Navy signs a 4-year agreement with Electric Boat, does that -- would that basically suggest -- I assume that would all be Block 5, and therefore, any products you're supplying would likely be carried through products through the entire 4-year cycle since my experience once again is the types of things you're doing as long as you execute operationally, your strength are not things that are going to be taken and handed to someone else midstream in a 4-year block procurement? So does that actually -- what would -- with your numbers that we're looking out over 4 years instead of 2, would they be $200 million?

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Alexander Shen, TechPrecision Corporation - CEO & President [86]

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I don't know.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [87]

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Am I on the low side?

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Alexander Shen, TechPrecision Corporation - CEO & President [88]

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Well, I think we're both on the I don't know side because I don't have the visibility into 3 and 4 years. So I don't know how to answer the question is the honest answer.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [89]

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Okay. And then lastly, it's -- obviously, being public is a drawback for you. It's a drawback with regard in some ways to -- for those who you work for. So just to let you know that if being public is seriously a problem, we, being your largest holder, would be open to talking to people about rectifying that situation?

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Alexander Shen, TechPrecision Corporation - CEO & President [90]

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Understood.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [91]

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I mean, it's exceptionally frustrating as a shareholder to not be able to get what I think is a really incredibly good story out into the public marketplace. And so the valuation of this company as I think is going to be -- my concern is it will be chronically undervalued because people simply aren't going to work hard enough to figure out what the underlying story here is. And I think we see that on a regular basis. I think we've seen it in the last few weeks in the stock price action. And I think that's about what I have right now.

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Operator [92]

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And our next question comes from Aaron Warwick with ES Capital.

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Unidentified Analyst, [93]

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I just want to follow-up with one thing. I think it especially relates to what Ross said about people not understanding the company. And so one thing I want to do, I don't know if this could help provide some clarity, but just using as an example, as you know that this Block 5 thing could close with the 9 boats by December 31. So let's just say that it does close by December 31. And I honestly don't know. I mean I'm a novice in this industry myself. But how long does it take then for the majority of that work that you're confident in getting? How long that takes to show up in your backlog? When would people see that?

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Alexander Shen, TechPrecision Corporation - CEO & President [94]

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That's an area I've been told to really be cautious on revealing insider information from the Navy and the 2 prime shipyards. So I'm going to respectfully decline to answer the question because of the cautions that have been put on me by the prime shipyards.

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Operator [95]

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And our next question comes from Richard Greulich with REG Capital Advisors.

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Richard E. Greulich, REG Capital Advisors - President & CEO [96]

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Alex, to date, you've only mentioned backlog and orders at the end of the quarters. If you were to receive a meaningfully large order in the middle of a quarter, would you feel that would be an event that should be announced to shareholders in the market?

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Alexander Shen, TechPrecision Corporation - CEO & President [97]

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I would need to get permission probably from clients. And I would also need to balance that against things of a competitive nature so that I don't diminish our ability to secure more orders.

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Richard E. Greulich, REG Capital Advisors - President & CEO [98]

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Would you be able to make an announcement to the extent of what the numerical numbers are without directly tying that into a specific contract? In other words, if your backlog...

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Alexander Shen, TechPrecision Corporation - CEO & President [99]

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I think these pauses that I have are both trying to think through the process as well as how to let you know once again that these pieces of information that are put out there need to be carefully managed. So we don't lose anything, therefore, damaging shareholder value versus the value of the information. The -- it's a careful line that needs to be walked. Much of the time the customers are pretty negative on us bragging about things because they tend to punish us with less. So that's the direct responses that I would end up getting from our clients. And they are very, very large clients, very powerful and very capable of really squeezing down the number of orders and the value of the orders that we get. And then there's the competition. Once they know that certain things are happening, well, then they're going to compete more fiercely against us.

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Operator [100]

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And our next question comes from Ross Taylor with ARS Investment Partners.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [101]

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It's not a question, it's actually more a comment again. I think that the last point was a very valid one, and I would suggest that you listen to how some of your peers handle calls that we have investments in companies that work a lot with 3-letter agencies in Washington, D.C., and they have figured out ways to let it be know -- the market know when something material happens, you are public. And so you talk a lot about the duty you owe the Navy and the Submarine Corp, but at the same -- as well as Electric Boat, but you also have that same duty. You owe a fiduciary duty to our shareholders.

And if it turns out that the best answer here is that the company should not be public, then that's the answer, but it needs to be explored in a way enough information needs to be present, so investors can make a rational choice. It's a difficult situation for you. I appreciate that. But it's also a difficult one for your investors who are trying to basically parse this through, as though you are speaking Sanskrit backwards in an echo chamber.

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Alexander Shen, TechPrecision Corporation - CEO & President [102]

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Understood, Ross. Thank you.

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P. Ross Taylor, ARS Investment Partners, LLC - Partner [103]

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And good luck finding a solution to this. Yes, I live in the world where I knew things for a long time where things didn't happen until much later, but it's tough. When you're a diversified company, it's easier to hide, you're not. And I don't anticipate there will be any effort to become diversified so that you can hide these things. So therefore, I think that it's a puzzle. And there's an answer to it.

And I think we all need to figure out a way to answer that puzzle so that everyone -- so the business doesn't suffer, but your shareholders don't live in the dark so that we can get a more fair valuation for this -- for what this company is. I think this is a very unique situation literally where you have. I've rarely seen such a long pathway that I can see as an investor. And it -- I find -- and my clients find it frustrating when the stock is battered by people who honestly just often haven't done the work and don't understand it and decide to get out by selling aggressively and that doesn't help any of us. I think we'd rather have this in strong hands that are comfortable and willing to sit with you for an extended time, while you spin-off free cash flow and return it to us, whether it be by share buybacks or dividends over the next 3, 4, 5, 8, 10 years.

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Operator [104]

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And our next question comes from Maj Soueidan with GeoInvesting.

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Maj Soueidan, Geoinvesting, LLC - Co-Founder [105]

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Relatively new to the story, so I guess, what -- maybe you can help me out a little bit here. Maybe everybody who's new to the story, how does revenue become realized through this whole process? It's through these awards that we're talking about and then the old budgets being freed up awards contracts? What is the process where the orders finally flow to you and revenue has been generated? Can you kind of walk us through that process?

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Alexander Shen, TechPrecision Corporation - CEO & President [106]

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Tom, do you want to take this one? I don't understand the question completely, maybe because I'm too simple.

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Thomas C. Sammons, TechPrecision Corporation - CFO [107]

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Well, we have 2 revenue streams. One is items when they ship. So we fulfill an order and ship a product. And the other is on some projects, we were able to do percent complete revenue. So we recognize revenue as we build a unit.

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Maj Soueidan, Geoinvesting, LLC - Co-Founder [108]

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Well, explain the process of how that work -- that need -- the steps that occur for you to receive your orders -- receive the orders?

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Alexander Shen, TechPrecision Corporation - CEO & President [109]

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For us to receive the orders, we're not -- this is a different question. How do I get orders?

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Maj Soueidan, Geoinvesting, LLC - Co-Founder [110]

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Well, the steps in receiving them? Yes, yes. So I guess coming into your backlog, when is that processed, all the steps that occur to get there?

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Alexander Shen, TechPrecision Corporation - CEO & President [111]

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I'm not going to be able to tell you all the steps that occur because that would be really telling you some inside information that I need to keep inside, right?

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Maj Soueidan, Geoinvesting, LLC - Co-Founder [112]

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Not necessarily, no.

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Alexander Shen, TechPrecision Corporation - CEO & President [113]

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Okay. I mean they confidently give us orders. Our story is one that's defense-centric, nuclear -- U.S. Navy nuclear submarine-centric. So those are the customers, the 2 shipyards and the primes that work for them are our customers. Those are the...

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Maj Soueidan, Geoinvesting, LLC - Co-Founder [114]

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Right. And In terms of when a prime, for example, gets an order wins maybe a contract. And what does that -- in terms of your experience, how long is that process in terms of when, when it...

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Alexander Shen, TechPrecision Corporation - CEO & President [115]

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It depends. It really depends. Each item is certainly different and sometimes the same part number, it's different. It's a very lumpy business.

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Maj Soueidan, Geoinvesting, LLC - Co-Founder [116]

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All right. You have expectations what that range could be, right, from your experience running the company.

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Alexander Shen, TechPrecision Corporation - CEO & President [117]

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I have expectations what I want it to be and then the cost, do whatever they like.

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Maj Soueidan, Geoinvesting, LLC - Co-Founder [118]

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I understand that. From your experience, what is that typical range? I know -- experience with them.

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Alexander Shen, TechPrecision Corporation - CEO & President [119]

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Whatever range or experience -- whatever range I try to tie myself down to I'm bound to be wrong.

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Maj Soueidan, Geoinvesting, LLC - Co-Founder [120]

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Okay. For the record, I mean I've been doing this for 30 years myself. And it's unusual for a company to come out and say, we can't announce contracts when we win them because we're not going to get contracts in the future. I mean it doesn't -- I mean, doesn't make sense that you would not announce these type of things as they occur. Just to sort of -- I appreciate your attempt to not share everything with us, but there are certain things you can share with your shareholders and winning major contracts and these kind of things is material information that you probably should share with us.

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Alexander Shen, TechPrecision Corporation - CEO & President [121]

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I understand your comment.

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Operator [122]

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And our next question comes from [John Hardison], a private investor.

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Unidentified Participant, [123]

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I have one question that relates to the new orders that you have the onetime charges with, I assume that they're DoD orders, is that correct?

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Alexander Shen, TechPrecision Corporation - CEO & President [124]

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While most of our orders are DoD, so that would be a great assumption.

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Unidentified Participant, [125]

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Okay. And then the part 2, are they new parts for Virginia, for Colombia or for carriers or all of the above?

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Alexander Shen, TechPrecision Corporation - CEO & President [126]

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Yes.

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Unidentified Participant, [127]

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All of the above?

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Alexander Shen, TechPrecision Corporation - CEO & President [128]

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Yes.

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Unidentified Participant, [129]

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Okay. That makes me excited because that confirms that you are doing a very good job, and they're giving you additional parts that you've never done before. So congratulations on that. And then last, I completely agree with everything Ross said, and it'd be nice if we could get Ross to be your IR person.

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Alexander Shen, TechPrecision Corporation - CEO & President [130]

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I'm writing that one down.

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Unidentified Participant, [131]

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Okay. All right. I'm happy to see the backlog up and Virginia finally coming to fruition.

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Operator [132]

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And that does conclude our Q&A session for today. I'll turn the call back over to management for any closing remarks.

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Alexander Shen, TechPrecision Corporation - CEO & President [133]

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Thank you very much, everyone. I appreciate your support. Have a good day.

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Operator [134]

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And that does conclude today's teleconference. We appreciate your participation. You may disconnect your lines, and have a great day.