As I mentioned in my 2010 year-end write-up on Techprecision Corp (TPCS), I was hoping that first quarter numbers would provide a much cleaner picture of the ‘normal’ operating results for the business.
Well, TPCS reported first quarter results for fiscal 2011 last week and the market approved, as the stock jumped 20%.
Net revenues were up 85.4% to $6.2m compared to the first quarter revenues last year.
Most of this rise was attributed to the resumption of orders from the company’s largest customer, GT Solar. GT Solar’s orders totaled $3.7m, compared to zero in the corresponding quarter last year.
Gross margins were 37.6%, much higher than the 17% gross margin in the same period last year. Margins were artificially depressed last year due to a large shipment of raw inventory in August 2009.
Until the inventory is worked off, TPCS will benefit from higher margin, service-based sales. With a more evenly mixed batch of services and product sales, the company’s gross margin should end up in the high 20’s on a percentage basis.
For the quarter, the company turned in a profit of $819k, a substantial improvement on the quarterly loss last year.
Revenue & Backlog Composition
While it is good to see the resumption in sales to GT Solar, an important part of my investment thesis is that the company is able to diversify its business.
Total backlog increased from $21.5m last quarter to $25.2m for the quarter ending June 30, 2010. This is a key indicator of TPCS’s prospects going forward.
Looking closely at the revenue numbers, the company’s other business segments outside of solar energy lagged, coming in approx. $900k lower than the same period last year. These are large complicated contracts, so some variability in quarterly results is expected.
Based on future outlook however, the company’s prospects seem to be bright – Non GT Solar backlog in the quarter was $17.3m compared to $11m at the same time last year.
According to the company:
“We believe that rising energy demands along with increasing environmental concerns are likely to continue to drive demand in the alternative energy industry, particularly the solar, wind and nuclear power industries. Because of our capabilities and the nature of the equipment required by companies in the alternative energy industries, we intend to focus our services in this sector. ”
As an example of this potential, on August 6, TPCS announced a multi-million dollar letter of intent from an emerging clean tech firm.
This order should translate into several thousand dollars of project engineering revenue in the next few months, initial production units within the next year, and a heavy increase in sales revenue in 2011 and 2012.
After a lengthy search, the company announced the hiring of James Molinaro as the new CEO on July 22. Mr. Molinaro has a diverse background, with over 26 years of experience in solar and semiconductor equipment production.
According to the press release, at his previous company Mr. Molinaro
“was responsible for diversifying the Company’s revenue streams and expanding business opportunities by tapping into the lucrative solar energy, military application and ink jet printer markets, increasing annual sales by approximately $32 million to $83 million over a four-year period. “
Hopefully he can guide TPCS on a similar path.
Although this was a necessary step for the company, hiring such a senior executive can also function to dilute existing shareholders due to stock incentives. Mr. Molinari’s offer letter allows for option grants for up to 1M shares of company stock, a substantial number.
Looking back, TPCS was trading north of $3 a share in 2007/2008 before GT Solar’s business took a nose dive, so the market has certainly priced in growth potential for the stock before.
As TPCS’s largest customer, GT Solar seems to be having a good year, as the stock is up over 50% YTD after reporting an order backlog of over $1B – hopefully this backlog will lead to increased sales for TPCS.
The dark days of 2009 seem to be behind the company. While still cheap based on current financials, the stock should jump considerably if GT Solar’s business continues to rebound or if one of the other business segments takes off.
It remains to be seen whether the new CEO can use his expertise to further diversify and grow the business.