TechPrecision's Q2 2026 Earnings Call: Contradictions Emerge on Profitability, Stadco's Role, First Article Challenges, Federal Grant Restrictions, and Revenue Growth

Date of Call: November 13, 2025

Financials Results

• Revenue: $9.1M in Q2, up 2% YOY (vs $8.9M in FY2025 Q2); 6-month revenue $16.5M, down 3% YOY
• EPS: $0.08 per share (basic and diluted) in Q2; net income $0.8M. 6-month net income $0.2M, $0.02 per share
• Gross Margin: Approximately 27.5% (Q2 gross profit $2.5M on $9.1M revenue), up ~16 percentage points YOY
• Operating Margin: Approximately 9.9% (Q2 operating income $0.9M); 6-month operating income increased 126% to $0.5M

Guidance:

• Expect to deliver $48.0M backlog over the next 1 to 3 fiscal years with gross margin expansion.
• 
• Continued focus on aggressive daily cash management, expense control, and execution to resecure customer confidence.
• Ongoing work to return Stadco to consistent profitability while capturing new quoting opportunities in defense sectors.

Business Commentary:

* Revenue and Gross Profit Growth: - TechPrecision reported consolidated revenue of $9.1 million for the fiscal 2026 second quarter, up 2% year-over-year. - Consolidated gross profit totaled $2.5 million, an increase of $1.4 million compared to the previous year's second quarter. - The growth was driven by improved customer mix and productivity gains at both Ranor and Stadco segments.

• Segment Performance and Backlog Expansion:
• Ranor segment revenue was $4.4 million with an operating profit of $1.6 million, while Stadco segment revenue was $4.8 million.
• The company's backlog increased to $48 million, with expectations to deliver these projects over the next 1 to 3 fiscal years.

• This expansion was due to sustained delivery and installation of new equipment and strong customer confidence in both segments.

• Operating Income and Financial Position:
• Operating income for the second quarter was $0.9 million, reflecting a 126% increase for the six months ended September 30, 2025.
• Net cash provided by operating activities was $0.2 million for the first 6 months of fiscal 2026, with debt reduced to $7.3 million.

• The improvement in operating income was largely due to better cash management and favorable customer mix, while debt reduction resulted from paying down principal under revolving and term loans.

• Stadco Subsidiary Turnaround:

• Stadco segment saw a $800,000 improvement in gross profit margin compared to the previous year, resulting in a 9 percentage point increase.
• The turnaround was attributed to improved contract pricing, customer mix, and production efficiencies, although legacy contracts remain a headwind.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "Fiscal 2026 second quarter consolidated revenue was $9.1 million or 2% higher..."; "Consolidated gross profit increased... resulting in double-digit year-over-year consolidated gross margin improvement of 16 percentage points."; "We had a profitable consolidated quarter"; backlog: "$48 million" and expectation to deliver it over 1–3 years.

Q&A:

• Question from Ross Taylor (ARS Investments): What percentage of your Stadco business is still needing to be reworked to become profitable or is one-off contracts that you need to run out to become profitable overall?
  Response: No specific percentage; management says one-off and first-article loss reserves were aggressively addressed in the reported quarter and will continue to be mitigated via customer collaboration and execution.

• Question from Ross Taylor (ARS Investments): Regarding first articles, was the problem design changes, customer changes, or underbidding—what was the root cause?
  Response: There is no single root cause; first-article issues are case-by-case across complex parts, driven by multiple touches, customer interactions and handoffs.

• Question from Ross Taylor (ARS Investments): Is this an issue both at Ranor and Stadco or more concentrated at Stadco?
  Response: Both experience first-article issues; Ranor works to consistent submarine specifications while Stadco faces more varied specs—management expects focus on repeat customers to drive Stadco recovery.

• Question from Ross Taylor (ARS Investments): If the Philadelphia Shipyard shifts to submarine manufacturing, would that be an opportunity for you and could you service it from your current industrial base?
  Response: Company will evaluate every opportunity but cannot provide detailed comment due to confidentiality; open to pursuing relevant opportunities.

• Question from Ross Taylor (ARS Investments): Can you walk through how you handle the federal grants you received, restrictions on use, and how they sit on the balance sheet?
  Response: Navy-designated work has priority; grant cash is segregated, liabilities established on receipt, assets recorded as equipment with offsetting liabilities and depreciated per useful life based on agreement terms.

• Question from Ross Taylor (ARS Investments): Are any of the grant-related liabilities basically future performance obligations (i.e., you must deliver services over time)?
  Response: Yes; some agreements include future performance obligations—for example, management cited a 10-year agreement requiring continued performance.

• Question from Ross Taylor (ARS Investments): What new business have you seen—are you getting involved in any new programs, particularly out of the Ranor operation?
  Response: Company is participating in programs within the Virginia and Columbia class submarines and sees program-level opportunities within those platforms.

• Question from Ross Taylor (ARS Investments): Is there an opportunity for you in larger undersea unmanned vehicles?
  Response: Not currently—those use different specifications; management would evaluate such opportunities if customers direct them but would be cautious due to first-article risk.

Contradiction Point 1

Profitability Challenges and Contract Renegotiations

It addresses the company's efforts to improve profitability through contract renegotiations, which impacts financial forecasts and investor expectations.

What percentage of your Stadco business still needs rework to become profitable? - Ross Taylor(ARS Investments)

20251114-2026 Q2: We've made good progress in renegotiating about 35-40% of problematic contracts. - Alexander Shen(CEO)

How are you managing contract renegotiations and growth strategy following the $50.1 million backlog increase? - Ross Taylor(ARS Investment Partners)

2026Q1: We've made good progress in renegotiating about 35-40% of problematic contracts. Focus remains on aggressive cash management and expense control. - Alexander Shen(CEO)

Contradiction Point 2

Stadco's Contribution to the Company

It concerns the company's strategy to improve Stadco's profitability and contribution to the overall business, which is crucial for financial performance.

Is the issue present at both Ranor and Stadco, or is it more concentrated at Stadco? - Ross Taylor(ARS Investments)

20251114-2026 Q2: The goal is to turn Stadco around by establishing a pattern of profitability and growth, focusing on countermeasures like renegotiating contracts. - Alexander Shen(CEO)

What percentage of the business is experiencing issues, and what portion is at Stadco? - Richard E. Greulich(REG Capital Advisors)

2026Q1: The problems are concentrated more in Stadco than at Ranor. There are still some issues at Ranor, but they are fewer. - Alexander Shen(CEO)

Contradiction Point 3

First Article Issues and Profitability

It addresses the ongoing issues with first article activities affecting profitability, which is a critical aspect of the company's financial performance and operational efficiency.

What caused the issue with first articles? Was it a design flaw, customer design changes, or underbidding? - Ross Taylor (ARS Investments)

20251114-2026 Q2: The issues with first articles are complex and dependent on each part being built. They involve multiple touchpoints and handoffs between TechPrecision and customers, leading to potential issues during handoffs. The company is working to improve execution and detail management to resolve these issues. - Alexander Shen(CEO)

What percentage of your Stadco business still requires reworking to become profitable or needs reworking overall? - Ross Taylor (ARS Investments)

2026Q2: The issues with first articles are complex and dependent on each part being built. They involve multiple touchpoints and handoffs between TechPrecision and customers, leading to potential issues during handoffs. The company is working to improve execution and detail management to resolve these issues. - Alexander Shen(CEO)

Contradiction Point 4

Restrictions on Federal Grants

It involves the clarification of the terms and conditions associated with federal grants, which can impact the company's strategic decision-making and financial planning.

Can you explain how you handle federal government grants, their characteristics, and any restrictions? - Ross Taylor (ARS Investments)

20251114-2026 Q2: The restrictions on the federal grants primarily prioritize the use of the equipment for Navy-specific parts. If there is no demand for those parts, the equipment can be used for other parts. Assets are segregated on the balance sheet, and liabilities are established to protect the funds received. - Alexander Shen(CEO), Phillip Podgorski(CFO)

Have you seen any new business initiatives? Are you involved in any new programs at Ranor? - Ross Taylor (ARS Investments)

2026Q2: We do not believe that we are close to the risk of a material violation. We have been able to use the equipment for Navy-specific parts. Obviously, it is subject to the Navy's discretion and approval as to what is a Navy-specific part. But that is the current status. - Phillip Podgorski(CFO)

Contradiction Point 5

Revenue Growth Opportunities

It reflects differing perspectives on the company's ability to grow its revenue through strategic opportunities, impacting investor expectations and business strategy.

Is the issue present at both Ranor and Stadco or is it more concentrated there? - Ross Taylor (ARS Investments)

20251114-2026 Q2: We see opportunities both within our current business and with new products, but new first article activities can often create near-term headwinds. - Alexander Shen(CEO)

Can you grow content per unit in submarine programs? - Kris Tuttle (Blue Caterpillar)

2025Q4: Yes, there's potential to grow content per unit. We've expanded in the Navy sector from less than 5% to over 90% of our business, indicating room for further growth. - Alexander Shen(CEO)