TPCS - NASDAQ

Good afternoon, and welcome to the TechPrecision Corporation Fiscal Year 2026 First Quarter Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Brett Maas with Hayden Ir. Brett, the floor is yours.

Thank you. On the call today is Alex Shen, Chief Executive Officer; and Phil Podgorski, Chief Financial Officer. Before we begin, I'd like to remind our listeners that management's remarks may contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements as contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we refer you to a more detailed discussion of risks and uncertainties in the company's financial filings with the SEC. In addition, projections as to the company's future performance represent management estimates as of today, August 21, 2025. TechPrecision assumes no obligation to revise or update these forward-looking statements. With that out of the way, I'd like to turn the call over to Alex Shen, Chief Executive Officer, to provide opening remarks. Alex, the floor is yours.

Thank you, Brett. Good afternoon to everyone and thank you for joining us. Fiscal 2026 first quarter consolidated revenue was $7.4 million, 8% lower when compared to $8 million in the fiscal 2025 first quarter. Consolidated gross profit totaled $1 million, an increase of $800,000 when compared to the first quarter of fiscal 2025. At both Ranor and Stadco segments. Our production costs decreased and margins increased. Fiscal 2026 first quarter Ranor revenue was $4.3 million with an operating profit of $1.5 million. first quarter, Stadco revenue was $3.3 million with operating loss of $1.2 million. Compared to the same period a year ago, Stadco had a $469,000 improvement in operating income. Stadco's $1.2 million operating loss this quarter consists of 3 drivers: one, lower revenue due to business timing and lumpiness; two, losses from onetime one-off contracts; and three, losses from specific first article costs. We are actively pursuing countermeasures and requesting adjustments from our clients. We remain highly focused on aggressive daily cash management a critical piece of risk mitigation. We continue to manage and control expenses, capital expenditures, customer advances, progress billings and final invoicing at shipment. Our tactical execution focus and success enables us to continuously resecure strategic customer confidence at both segments. At our Ranor segment, sustained delivery and installation of new equipment continues as we specifically execute the $21 million plus of completely funded grant money from our U.S. Navy-related customers. Customer confidence remains high. We reached a new milestone, building our backlog to $50.1 million on June 30, 2025. This high customer confidence is leading both subsidiaries, Stadco and Ranor to new quoting opportunities in air defense and submarine defense, respectively, with the same customers that already know and trust our capabilities. We expect to deliver our backlog over the course of the next 1 to 3 fiscal years with gross margin expansion. I'll turn the call over now to our Chief Financial Officer, Phil Podgorski. Phil, all yours.

Thank you, Alex. As Alex just mentioned, for our fiscal 2026 first quarter, consolidated revenue decreased by 8% to $7.4 million compared to $8 million in the same period a year ago as we continue to focus on building our strong recurring revenue customer base. As a result, the consolidated cost of revenue decreased by 18% to $6.3 million as throughput and productivity improved at both segments. To the point, consolidated gross profit increased by $0.8 million, $800,000 from $0.2 million in fiscal Q1 2025 to $1 million in fiscal 2026 first quarter. Resulting in a double-digit year-over-year consolidated gross margin improvement. Consolidated SG&A decreased by 6% to $1.5 million in the fiscal 2026 first quarter, primarily due to the absence of breakup fees on the terminated Votaw acquisition, which was evident in the same quarter a year ago. Fiscal 2026 first quarter interest expense was slightly higher due primarily to higher amortization of debt issue costs related to extending our revolver line of credit. Net loss was $0.6 million or $0.06 per share basic and fully diluted. Moving on to our financial position. We continue to actively manage our cash flow. Operating and investing activities provided a total of $1.6 million of cash in the fiscal 2026 first quarter. We also used $1.7 million in financing activities primarily to pay down borrowings under the revolver loan. Our total debt was $5.7 million on June 30 compared with $7.4 million on March 31. Cash balance on June 30 was $143,000 compared to $195,000 on March 31, 2025. Working capital was negative on June 30, 2025, as all of our long-term debt is classified as current because of certain debt covenant violations. Now let's take a little deeper dive into some of the segments. For Ranor, sales were down year-over-year by less than $100,000 with overall strong margin growth across all projects in Q1, resulting in an improved margin drop-through of 7 percentage point increase and contributing $1.5 million total in gross profit for the quarter. Relative to Stadco, Q1 fiscal 2026 sales declined $300,000 compared to the same period last year as we continue to focus on repeat work and not fill in jobs. Stadco experienced a year-over-year gross profit margin improvement of 14 percentage points or $500,000. Stadco's improved gross profit versus prior year is primarily the result of improved pricing on contracts and improved production efficiencies. While this is an improvement, the company continues to face headwind on legacy contracts and underpriced onetime contracts with approximately 30% of our customers, resulting in the $1 million Stadco gross profit loss for the quarter. As Alex mentioned, we are actively working with customers on these contracts toward recovery and new pricing. With that, I will now turn it back over to Alex.

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 2 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 precludes 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. TechPrecision is proud and honored to serve the United States defense industry, specifically naval manufacturing -- 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. Overall, at both the Ranor and the Stadco subsidiaries, we continue to see meaningful opportunities in our defense sector as evidenced by the strength of our newly reached backlog of $50.1 million. We are encouraged by the prospects for growing our revenue and increasing profitability in future quarters. Operator, please open the line for Q&A.

[Operator Instructions] And we have a question from Ross Taylor from ARS Investment Partners.

Congratulations on finally getting the backlog up over $50 million. It's been kind of flatlining for a while, so it's nice to see that step higher. Also, it's nice to see the CFO participating in the call in what I think is a meaningful way. I hope that's a sign of significant change as we push forward.

I think there was a question in there, Ross. That is a sign of significant change, and Phil is fitting in really well.

Thank you, Ross.

And it's as I said, it's nice to see that change. I'd love to talk to you about -- first, you talked about the idea you have bad contracts. I assume these bad contracts are basically or wholly with Stadco. And how long do we see them hanging over us?

Okay. So let me go to one of Phil's comments that talked about the affected contracts, where about 30% of customer revenue was contributing to that. It's taken us quite a number of years to overcome a set of legacy contracts that were plaguing us, and we are seeing good traction and we'll maintain that good traction. I would say that, that's in the realm of...

Close to 35%, 40% that we've completed and made progress on already resolving and moving forward with positive pricing.

Yes. I don't know how to forecast when I'll get the next tranche done, but we've been working on that pretty constantly, Ross.

Okay. So I'm kind of looking at -- you're assuming you got something in the neighborhood of about $2.2 million in contracts that were problematic, shall we say, in the quarter just reported. So what you're saying is that of that, you've been able to address or of your overall mix, you've been able to address over 1/3 of those contracts so that you actually can operate on them and make money on them. Would that be a safe assumption?

Yes, that is correct.

Yes. And then to answer your other questions, is this -- are these problems concentrated in one subsidiary? I would say more yes than no. It's not all of them all in one subsidiary. There are still some things that happen, but predominantly all on one side, yes.

Okay. Go ahead.

Yes, I was going to say a much lesser degree at Ranor.

Yes.

Okay. With -- does your backlog include anything from your new business areas, you mentioned air defense and subdefense?

It's all air defense and subdefense.

Yes. And we continue to drive and look for other additional opportunities within those 2 sectors.

Okay. So you're looking at -- when you're saying subdefense, you're thinking of submarines generally as a defense space as opposed to anti-submarine warfare.

Correct.

At this stage -- yes, at this stage, absolutely.

Yes. Okay. Stadco has been a huge bug of -- you owned it for now, what, about 4 years. I think the total cost to shareholders has been meaningfully north of $20 million, what you paid for it and what you invested in and what you've lost from it.

That's absolutely correct.

Yes.

Yes.

It's when -- and it also, I believe, it's resulted in share dilution. I believe it was probably behind the move to acquire Votaw, which became an absolute [ Stadco ] because of the way it was handled and the way it was going to be financed. What is it going to take? And when can we expect to see Stadco become more of a meaningful contributor or a positive contributor to the operation?

Well, I think the -- forgive me for just stating the obvious, but we finally had one good quarter that was Q4 fiscal '25, followed by a not-so-good quarter at all. The important thing here is we are capable and we are showing that we're capable of having a good quarter. My job, Phil's job, everybody's job is we need to establish this thing into a line, a trend. 1 point, 2 points make a line, 3 points make a trend. We're going to make it happen, and that's what we know we can do now. That doesn't tell you when, though. I would like the wind to be faster, please, Alex. Let's move.

I was going to say, given it's been 4 years, I think that to say that you are trying to investors stole [Technical Difficulty]. Okay. So when we're looking at that, do you believe that the steps you're taking in the renegotiations can get us there over the next -- to where you could be on an operating basis, we should be able to see this business no longer contribute negatively to the company's bottom line?

So yes. And just not only renegotiation on legacy contracts, but our way forward needs to be filled with different types of things other than just requesting assistance on existing legacy contracts. But moving forward contracts, those are key and critical to our well-being in the future. And Phil is participating heavily on those.

I was going to say very heavily.

So yes, I think it is -- Ross, from an operational perspective, we're putting in place a number of different processes, controls in place to make sure that we're pricing things accordingly with new bids, et cetera, right? So -- and that's including any of the slowdown costs that come through from TechPrecision as well, right? So we want to make sure that the segments are covering all of the costs of the organization.

But all that feel-good stuff aside from answering Ross with feel-good words, we really need to get more quarters of profitability and show our stuff in actual proof, yes.

It would seem that while you did have some issues with some Ranor business, it really seems that what's keeping us from where we need to be is 2 factors, I believe, one of which is getting Stadco to where it can operate in the green as a business. And then the second is, to me, when I've modeled this company, I keep looking at thinking you should be able to generate meaningfully higher. You should be generating $70 million to $100 million in revenues. And I think that's possible in the sector you're in, the nature of what you guys do and the like. And to do that, we're talking about doing $18 million to $25 million a quarter, and we seem to be kind of stuck in the $7-ish million, $6 million, $7, $8-ish million. What is being done? What are you guys doing culturally to break away from this kind of $7 million, $8 million quarter-by-quarter run rate where we can eke out a profit here or there, but it's never going to be a big one? But my assumption is if you could take that business and double it, which is kind of what I'm saying, you would end up generating a substantial amount of earnings and free cash flow, you'd quickly be able to pay off the debt, you'd be in a situation where you were in a much, much better place. What's been done to drive that top line? And are you starting to hunt for business? Or are you still waiting for business to come to you?

No, I think I'll answer -- I'll start to answer. So we definitely have a pursuit list, right, with a number of opportunities that we are looking to move forward with. The defense industry, the aerospace industry is not quite like the Titanic, but it takes a bit of time and a bit of effort to continue to navigate through that. So yes, we do have a pursuit list, and we're attacking that, call it, knocking door on door-to-door to make sure that the -- and also to make sure that they're the right fit for our organization. As Alex had articulated, we like the -- and we're successful at doing a lot of the repeat type work, all right? It is very profitable for this organization, and that's the direction that we are looking to move. How long will that take? It's one bite at a time, all right? And that's what we're doing right now. We're looking at it strategically and how do we grow the top line organically?

So this offline also should take care of [Technical Difficulty] with CH-53K with F-15EX with assuming that we're ever able to kind of get a ramp-up in build rate in the Virginia-class submarine and like that on one level should drive substantially higher revenues, I would think, just when you look at your business model.

Yes, there's no doubt. I think that the other hurdle though is investment in the organization as well, all right? So in order to do that, actuate that, we will need to invest in both equipment like Ranor is getting customer-funded or grants. Stadco right now, we have to, from a strategic standpoint, make those investments. Secondly, I think it is utilizing the facility, right, both first and second shifts, right? And I think we have the ability to do that. The barrier, though that we have is resources. It's tough to find the talent that we need to do this.

And it's tougher to keep the talent. Both locations are very good at what we do. Both locations are very good at training people to achieve levels of expertise. And both locations have competitors as well as customers that take our people away. And it's not something that's new. It's always been this way. And we just need to continue to fight the fight and overcome that with more volume, train more people then. But one of the things, Ross, that you referred to on cultural changes, I'm going to hand it back over to Phil and also go back and forth with Phil a little bit. But some of our basic execution routines are coming into play well because they're actually developing into routines. So Phil had alluded in his comments of cost of revenue decreasing because of throughput and productivity improvements at both segments. He just touched on it. This is a basic number of routines that we are executing better. It's not a one-hit wonder. As we move forward, we want to continue to monitor and audit ourselves internally to make sure these routines are continue to be in place and can continue to execute so we can reap more benefits, more profit. So as we increase our revenue, we would like to see much better than just an even percentage of increase. We'd like more to drop down because we have put these routines in place so we can execute better at a smaller top line. So it's transferable and upscalable to a higher top line. And we've been working this for quite a while. Phil has different expertise being directly from the defense industry on the client side is some help. He still needs to get used to how clunky and lumpy everything is more so than RTX was, even though RTX was really a project company of Raytheon. So it's very similar. But yes, I think you'll -- we want to see more throughput and more productivity gains from our basic really blocking and tackling at a very tactical person level on the floor. We've put in the routines, and we ourselves are auditing and monitoring the routines. We're both workers. So it's helping. I'm sorry for the long response, Ross, but you opened the door to a longer explanation, and I'd like to just offer some color. Thank you.

Well, I'm going to actually say, I think this to me, what I'm hearing you say, and first of all, Phil, I think that you, combined with the addition of 2 directors, appear to me to be meaningfully professionalizing this organization, which is important. I think that often we've struggled to see this, quite honestly, the example of 2 insiders gifting shares during a quiet period. I've only been in this business 40-something years. To me, that's a totally unacceptable. Good companies don't do that. That's not acceptable. Good companies find a way to make sure they don't lose money when things are slack. And what I'm hearing you talk about is the ability to grow this business. I didn't hear you tell me that you can't get to the numbers I think you need to get to, to generate the kind of revenues you need to push earnings per share here up to a meaningfully higher number than they currently are. So all this is very encouraging if it can be made to happen and if it can be made to happen in a reasonable period of time. So how much longer are you going to frustrate me and disappoint?

We -- again, forward-looking statements, we're going to do the best we can to make that happen as quickly as we can, right? Certainly, we have also pressure from the Board, right, to do the same exact thing. So...

I think it's pressure from our wives too.

We certainly have a job to do, and we're focused on driving that forward.

Well, I'd like to say, I think that the shifts I'm seeing to me are really meaningful. And as they should get you gaining traction. It's very hard to turn organizations around, particularly when they rot at the top, not saying you, Alex, I'm saying at the top. And so I think in this focus, what I'm seeing happening here is really positive. And so thank you guys very much. Good luck negotiating the last 60%, 65% or so of renegotiating those contracts, so we can get rid of those. Good luck growing your business. I would suggest hunting some new business in would be really useful. And I heard something I never thought I'd hear from a tech precision person, which is second shift. And that really excites me. If you are focusing on the idea of trying to build this business where you can run a second shift, that's huge. And it should be very positive, which will give you free cash flow, which all good things flow from. You can get new equipment, you can pay down your debt, you can buy back stock, you can make acquisitions. All that's going to come from that. So I'm pretty -- I don't get excited, but I'd just say I'm positively inclined as we push...

Your next question is coming from Richard Greulich from REG Capital Advisors.

So this quarter, there was a $250,000 change in the contract loss provision. Is that correct?

That is correct.

And was that a result of a new negotiation? I think Alex refers to them as tranches of renegotiation or redetermination of pricing, et cetera. Was that a new one? Or was that a follow-on from last quarter?

Hold on one second. We're clarifying something, 1 second.

Yes. So Richard, we did experience an additional loss reserve, and it is on...

That's on a onetime.

Exactly.

One-off project.

One-off projects that has been, I'll say, it's almost in the rearview mirror, right? So we're hoping that Q2, it's going to be gone completely. We're getting...

That's what we're working towards. We've been working towards diligently.

So it's a matter of shipping and getting it out the door. So that will be behind us very soon.

Your next question is coming from Mark Gomes from Pipeline.

Nice to see this call go from entertaining to professional. Congratulations on the progress. First question, if everything went your way, right, you've renegotiated 35% of those contracts that aren't so hot. How long would it take to get to 100% if everything goes your way?

I think that's the question that Ross was asking also.

Was it worded the same way. I'm really saying like because if you have a good idea of what your obligations are under those contracts and when you're really in a position to renegotiate, you're not in a position to determine how long it will take to renegotiate or how successful you'll be in that regard. But given what you know, if everything went your way, roughly how long would it take to get from that 35% to 100%?

It's a hard one. Given our customer base and so forth, certainly, our customers are looking to ramp up. I think we know what the administration's agenda is. And it does put us in a bit of a better position, right? We are sole source on some items, single source on others, right? Certainly, the customers do put out to bid, and we're subject to negotiations, hard negotiations with each of these customers. They're much bigger than we are, for sure. So it is putting a lot of pressure to try to reduce when we're trying to increase the price. So each one of them is unique. If we had our way, which is...

If we had our way, it would have been done already.

Yes, I was just going to say we would have -- because the effort has already been...

The effort is going on this last 4 years.

It is, like I said before, it's not quite as bad as turning the Titanic, but it is -- I came from RTX. I know what it's like. They can be pretty tough negotiators, and they will hold a hard line. And we'd have to be willing to say no to certain agreements and contracts, if we're going to lose money. That's it. We can't do it, right? And we need to start looking at other opportunities. And that's why the earlier comment about pursuits. We have a list. We have customers that we're going after, right. So I can't answer your question specifically, Mark, but Alex did in the sense if we had our way, we'd be done.

I think the good part about the question really points to also what success have you had, and we've had some. And what Phil alluded to was 35% to 40% of success. So we're not incapable of success. We're not just dreaming this and saying it on earnings call and turning it into just words. We have some success. We are aiming towards more.

That's great color and helps quite a bit. So next question, if we look at Virginia, Columbia, CH-53K and F-15EX, where do you sit in the ordering supply chain for that, right? Like we get to see from our side, orders get placed, production schedules, Boeing is ramping up, there's full-rate production on a lot of these things. But where in the manufacturing process do you end up shipping products on each of those programs?

I think I'm in the place where I can't really talk about where I am because I'm embedded in some of this information that I'm not supposed to talk about. I don't build -- so I can tell you that we're building on new components for new ships, and we are building on new components for new helicopters, and we're building on new components for new F-15EX fighters. That's for sure, I can tell you. We're not -- that's all our predominant business. We don't generally deal in retrofit and other things. Just like -- I can't really tell you about which parts of the submarine I'm in charge of. That would be -- it depends on which -- so because it's intimately related to which part is in where in the manufacturing process, it's I just I got a clamp on...

I don't need it on a BOM basis, right, on a line item basis. I'm just trying to get a decent feel so that when I see more subs being ordered or delivered roughly in the submarine process, are you on the front end or on the back end of that? And then if you want to do aerospace in general, are you in the front end and the back end in general, if you don't want to dig down to the specifics of 53K and 15EX?

Yes. So go ahead. We're both going to answer the same way. Go ahead, Phil.

We're both at the beginning and the middle and the end, quite frankly, right? So the key is that we certainly have capacity. We are -- to do more. We are at we're subject to how quickly our customers also can supply us with customer-furnished material. So a lot of the lumpiness that we see as well relates to delays from our customers getting us that CFM as we call it, the customer furnished materials.

On some contracts, conversely, they're ready to ship us material and waiting for their funding to come through so they can put that funding on a PO because they've already got the raw materials on hand ready to ship today. It really depends on what it is. And just like Phil was saying just now, we're at the front, the middle and the end or into all of it. It's very specific is what it ends up being. It's a very tactical business model that we're pursuing. And the tiny small businesses that we're running is the perfect fit for those. Our capabilities and the trust that the customers have in our capabilities is high. We keep demonstrating we can deliver on time. So it doesn't really matter in the front end or the back end or the middle of the manufacturing cycle. We're demonstrating our capability to deliver on time. That's probably a key color point that's colored green. Back to you, Phil.

Yes, well, that's been evident and been a big part of the reason why I've stuck with you guys through all of this is that the quality is there, so the bones are in place. Phil, you were going to comment as well.

I think Alex hit it very nicely, actually. So we're ready to accept more without a doubt.

And we are accepting more.

Exactly.

We just signed off a couple today and yesterday, me and Phil.

Great. I just have one more in 2 parts. If we look out 2 or 3 years, and this is just a guess. Obviously, it's not guidance or anything we'd hold you to. Just trying to get a feel for your impression of how much of your revenue you think could come from programs that you're not involved with today? Is it something closer to 10%, 30%, 50% or 75% of your revenue coming from new programs, let's say, 2 years -- 2 to 3 years down the road?

Yes. So we certainly have a long we'll call it, stream or long stream of existing that we have line of sight to. We talked about the additional pursuits and additional programs, right, that we're also looking at. Right now, they -- again, it's all probability, right? Are you going to get one or are you going to get the other, right? So some of them can range from a few million to multimillion. And as such, we could get one that's going to be multimillion that we're pursuing. And gosh, that would make up 1/3 as it would be incremental to the business we have. It could be 1/3 of the business. right? So I mean...

It's a very good answer. It depends.

It does depend.

It does depend. It does depend, right?

So we definitely...

But you're talking about numbers in the third as opposed to saying, well, we're looking at programs that could double our business, right? Or we're looking at programs that might add 5% to our business. That's -- I'm just trying to get into the ballpark. So if you're saying that 1/3 of your business 3 years from now, if things go well, reasonably well could be coming from new programs, that would answer my question. Is that kind of gut feel ballpark?

I would characterize that answer and say it could be 1/3 from new programs. New programs, meaning a program has a different kind of meaning depending on what you're talking about. Like if you're talking Non-Virginia class, non-Columbia class, non-15...

No. I was really talking about new parts, let's say, right? Like if you -- if you expand your participation in the existing programs to me, that counts as adding to what you have today. Because for me, right, like as a person that's looking forward to what you're going to do in the future, I can get a decent sense as to what your contribution is to each of those programs today and how those programs are going to ramp up and get a sense as to what your revenue should be in the future. And I come up with similar numbers as Ross. But then if you increase your reach into those existing programs and/or add parts into new programs, then that's where we have to kind of look at adding to our model in terms of what the range of possibilities are.

Yes. And I will point out, this is public information, so I'm not letting any secrets out here. The electric boat is relatively close to Ranor within driving range and Electric Boat has run out of capacity in many different aspects for specific part numbers. And that -- those part numbers still have to be built by somebody that they trust that can actually make those new part -- new for the vendor, not new for electric boat. And I will say that we are part of that.

That's great. Second part of my question would be, do you feel confident that you'll be able to renegotiate everything that you're doing to the point where you feel comfortable? Or do you think there's a portion of your current slate that you will walk away from?

I'm going to let Phil take a crack at it. He's been watching me and pummeling me and whipping me to death and driving me to visit with the customers. So why don't you take a crack?

I definitely have pricing on his mind. So the short answer is there is a likelihood we may walk away from some, right? We just cannot continue to lose money on contracts. I think what it's going to force though is some, I think, more level set negotiations with the existing customers, right? So will there be -- will that be a majority of it? No. I think the customers themselves are very open. They need to understand and they need us in business as well, too. I think that's key, right? So to answer your question, Mark, there may be some, but I don't feel that it's a majority of them. It's a small portion, if any.

I think the other thing to lend more color to what Phil just talked about, on these large negotiations, we are single or sole sourced. So the customers are going to experience massive problems going to a secondary competitor that hasn't made these in the last decade or 2. So the probability is low. The walkaway possibility is there, yes. And we are not kidding around when we go to negotiations and request that they identify the risk because I need to identify the risk, I need to bring it back for Phil to look at fiscal impact and make a decision. We're very unwilling to walk away, of course, just like our customers are unwilling to let us go. They developed us. We're actually part of them more than not part of them. We're more than just a regular off-the-shelf supplier. We're a custom, probably part of their family of custom suppliers. Without us, they won't have a fighter. Without us, they won't have a submarine that works. It's a big problem. So I think the idea is we're going to continue pushing our position, and we need to come to a mutual understanding. Let's get the vendors healthy.

Well, aside from your reliability, the fact that you are -- you do have that nice leverage position of being a sole source supplier on a lot of your products is the other major tenet of my patience to this point. And now you're starting to pay it off. So thank you very much and thanks for the openness. It was really nice to have these long open discussions on these calls.

We have a follow-up question from Richard Greulich.

So your customers see what your financial performance has been, not necessarily on each individual contract, maybe they do. But I guess my question revolves around when you go and negotiate with your customers regarding pricing and other aspects of the contract, do you believe that they feel that a 30% gross margin overall is acceptable for both you and them? Or do they think that that's too high?

The questions -- you're in an area where it's really confidential negotiations under NDA with that question. But I think I can say something about that. None of what we're asking for is outside the realm.

Of achievement?

Of accelerability.

Okay. Well...

Richard, just let me give you more color. Nothing that I am asking for is outside their allowable actions, nothing. It's all contained within. We have [ worked ] ourselves also. And Phil comes from a defense organization himself. He understands what can and cannot happen. Yes. And you bring up also a very good point. These customers have access to our public information on all our finances. So they understand that I'm not biasing them when I tell them a number here, look at my filings. Would you like to go through them page by page? I'm ready to do that. There's over 50 pages on the 10-K, sure. And I have done that. No problem. Yes, yes.

Well, what I'm thinking about is in the past, and I'm saying over the last several years, I had thought that the company operating efficiently and effectively with higher revenues might be able to achieve a 30% gross margin overall. Now obviously, Stadco has kind of thrown a monkey wrench in that. But in the past, I believe Ranor has achieved that. Is that a number that is still achievable, do you think?

How much of it do we want to talk about publicly? And then these calls are listened to by our customers as well as our competitors, Phil, but go ahead and answer it with that background in mind...

Phil, could you take the handcuffs off your mouth now?

It's duct tape, I think you put on. So to answer the question differently, we certainly are a defense contractor. We know that we have to and are required to be compliant with the FAR and as part of that with the CAS accounting, right? And as such, we know that there are limitations with how much margin that we can build into these contract -- defense contracts that we have. And as Alex had indicated earlier, we are certainly compliant with that, right? So we do have, again, pressure to -- downward pressure on each contract. The idea for Stadco is to try to continue to replicate what we did and have done at Ranor and have the same drop- through margin drop-through that we do at Ranor.

I think, Richard, one of the things that we can talk about and should keep in mind is we need to earn that respect and earn that right and earn that ability to secure a higher-margin business. So it's easier to justify a supplier that's 100% on time and has gotten awarded for 100% on-time delivery, 100% quality for 4 years in a row, 5 years in a row, 6 years in a row, continually showing gold and gold medal winners, whatever the classifications are and make it easier on the client to say, I want this guy.

Yes. Because it's not just a matter of you earning the higher margin, but because of your performance, you're allowing the entire operation to be executed more efficiently and more profitably.

They lose less by paying us more. Correct. Yes. So hopefully, I'm answering your question with more color and not really point-blank talking about a number, which I'm trying to shy away from a little bit. Thank you for your patience with me.

And we have a follow-up from Ross Taylor.

Having spent time long ago in the defense business, some of this conversation makes me very nervous, actually.

Thank you.

And it's very rare for me to say that. Is it safe to say what -- these contracts we're talking about, the assumption that I have, maybe many of us have is that they're largely, if not almost entirely, located in the Stadco operation. How much of the troubled business is focused or is located in Stadco at this point? I think we've known that your relationship with Electric Boat and in the subspace is a unique one. They clearly years ago stepped through to help you to make sure they demonstrated you were a key component of the operation. How much of what we're looking at here and we're talking about here is really tied into the 2 primary programs that you have in Stadco?

So we're talking about the loss leaders, right?

Yes.

Okay. Yes, predominantly Stadco. I think I lost the thread of the question. I thought it was how much we can do with it.

What I'm trying to get at is, put it a different way. If you had never bought Stadco, we wouldn't be having a conversation...

We agree with that. Yes, we would be profitable.

Well, profitable in one sense, but still one subsidiary in another sense and unable to kind of like absorb the hell out of all the overhead and from -- it's like one parent and subsidiary, holy c***, we need to do more.

Yes, it would give you the -- it would improve your balance sheet. It would -- I mean, there are a lot of positives that would come out of it. It would leave you with the need to grow the business to absorb the overhead, certainly. But you would be we would not be looking at a balance sheet where it is today. We would not be looking at the investor frustration that you have today because of the issues that have come with Stadco. I mean it really seems to me that what we're really talking about here is that...

Absolutely. I'm going to let Phil answer that one because he's got the fresh eyes. He came on board when -- go ahead, Phil. Just go ahead.

So Ross, you're absolutely right. If I look at the balance sheet on Ranor, it's extremely strong. I look at the balance sheet on Stadco, it's not, right? It is certainly drawing cash every single month out of the organization right now, right, except for part of Q4, which was nice to see. The idea is, again, to shed the unprofitable businesses or contracts out of that business...

And improve some of them.

Improve some and to continue to focus on the ones that we have already improved and grow those, right? So it is bringing stability to that organization, right? And you're absolutely correct. You had mentioned early on, you paid x amount for it, you lost x amount, right? You're sitting with $20 million or thereabouts. That's a lot that you could have used to invest in the equipment, et cetera, right? There is a strong path for recovery with Stadco. And it is, again, one contract at a time. As we said, we've already worked on the 35% to 40%. It is now -- and we're already still working on others. Alex and the team prior to even me joining has already started that process. It just takes time one at a time. And we're focusing on it. We're getting to the root cause. How can we improve efficiencies on one contract to make it more profitable? How can we improve the actual pricing on the contract at the same time. And so the -- I think to answer your question, yes, it is Stadco, no doubt.

And what you're talking about is if you can -- if your partners, Boeing, others, Sikorsky, others can either allow you to make enough money on these contracts that you can reinvest in your business or find ways to do for you in this business, what the sub- manufacturers, Electric Boat and the government have done. That industry, they will find that they get rid of potential bottlenecks. They improve efficiency, they improve deliverability. Obviously, this whole situation, what we're seeing from the defense standpoint is we need more now and solving this -- it strikes me as what we're really looking at is these are major players. You don't need much money. I remember at one time, we sent out a team to solve someone because we couldn't -- we actually took over running someone because they couldn't make it. But without them, our biggest program didn't work. I mean it's -- this is -- this can all be solved by reasonably small amounts of money, it strikes me. as. And so the key is just finding a way that they want to work with you, recognizing that it's easier to help you than to try to requalify someone else to do what you're doing if you have to walk away. I appreciate -- go ahead.

I completely agree with you. And these are discussions internally that we are having all the time and talking about how we move that forward, all right? So we talk about customer engagement and so forth. My gosh, it's extremely nice to see here the amount of time customers spend with us...

The level of customer engagement daily.

Yes. Exactly.

At both subsidiaries.

Exactly. So I think you're right. I think it's continuing to engage that customer and look for additional opportunities, whether it be customer investments and/or additional contracts. So I agreed with you completely, Ross.

I'd like to -- once again, this is, to me, the most encouraging call I've heard since I've been involved with this company. And I think that -- I know that there are some -- I'm watching aftermarket trading where people are selling this. I'm trying to figure out why they're clearly listening to a different call than I'm listening to, and they're hearing a different message than I'm hearing. I think that what I'm hearing you guys tell me is that you actually are becoming a professional managed organization. And I think that Mark was saying some of this, it's a huge improvement. I am really excited about what I'm hearing from you guys because it's the path to where we want to be, which is not a $5 stock or even a $10 stock. It's a multiple of that. And I'm hearing you guys say things that let me think we can get there.

We all want the same thing.

And this does conclude today's Q&A session. At this time, I'd like to hand the floor back to management for closing remarks.

Thank you, everyone. Have a great day.