Techprecision Corp TPCS

NEW YORK, Jan. 19, 2024 /PRNewswire/ -- Wynnefield Capital and its affiliates, collectively the largest institutional stockholder of TechPrecision Corporation (NASDAQ: TPCS), with a 4.5% beneficial ownership interest, today issued the following public letter to the Company's Board of Directors.

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January 19, 2024

Wynnefield Capital Demands TechPrecision's Board to Commit That Stockholders Will Vote on the Votaw Transaction

Dear Board of Directors,

Wynnefield Capital and its affiliates (collectively, "Wynnefield") own 393,857 shares of common stock, or 4.5%, of TechPrecision Corporation (NASDAQ: TPCS) ("TechPrecision" or the "Company") as of December 31, 2023. Wynnefield is TechPrecision's largest institutional stockholder, according to Bloomberg.

In its first public letter on December 7, 2023, Wynnefield asked the company to hold a public conference call to explain the proposed acquisition of Votaw Precision Technologies. After receiving no response to this very reasonable request, on December 19, 2023, we publicly questioned why the board was unwilling to disclose the transaction's funding strategy. TechPrecision has given just a generalized response with no material details. Wynnefield remains alarmed by this Board of Directors' disregard for its duties to ALL stockholders, the uncertainty it has created and its contribution to stockholder value destruction.

TechPrecision's board has not earned stockholder trust to approve at its sole discretion, under any circumstance, the proposed Votaw transaction. The claim "the board is unanimous in support of the acquisition" should not be reason to circumvent stockholder interests to weigh in and vote on a proposed transformational acquisition. Just when unfavorable voting results were reported following the September 12, 2023, annual meeting of stockholders, the board was approving the execution of a letter of intent with Votaw knowing that the potential acquisition could cause significant dilution to existing TechPrecision stockholders.

Wynnefield is at a total loss why the company would not engage immediately with its shareholders. We intend to carefully monitor the inevitable dilutive capital raise to ensure equal access opportunity for all shareholders. Wynnefield has operated for over 30 years and never witnessed anything quite this bizarre.

Wynnefield Capital demands accountability given the destruction of stockholder capital. It is time this board and management ADMIT their shortcomings and publicly ENGAGE with stockholders. TPCS stockholder returns are clearly a disaster on an absolute and relative basis.

No matter how you look at it, TechPrecision's board has caused great harm. The track record is as follows:

• Stockholder reaction to TechPrecision's press release on January 8, 2024. TPCS shares DECLINED by 14.7% to $4.46 per-share on Monday, January 8, 2024, from $5.23 per-share on Friday, January 5, 2024 – an immediate, one-day reaction to the company's press release.
• Stockholder reaction since TechPrecision's proposed Votaw acquisition on November 29, 2023. TPCS shares DECLINED by 37.8% to $4.04 per-share on January 18, 2024, from $6.50 per-share on November 29, 2023.
• 2024 YTD TPCS share performance. TPCS shares DECLINED by 22.0% on a 2024 YTD basis as of January 18, 2024, hitting a new 52-week low of $4.04 per-share and the lowest closing price since $4.00 per-share on April 9, 2019 – almost 5 years ago!
• 2023 TPCS share performance. TPCS shares DECLINED by 37.4% in 2023. The Russell Micro Index increased by 7.7% in 2023¹.
• TPCS share performance since STADCO acquisition. TPCS shares DECLINED by 31.3% for the period from TechPrecision's STADCO acquisition close on August 25, 2021, to January 18, 2024.

Source: Bloomberg data.

In TechPrecision's press release on June 8, 2023, the board's claim that it is "…limited by the securities laws as to what topics…" can be discussed attempts to obfuscate the many topics that are legally allowed and insults stockholder acumen. TPCS shares plummeted by 14.7% that day. What more proof does the board need that their path remains ill-advised than the dismal stockholder returns presented above?

As Wynnefield attempted to understand this situation better through constructive advice in our first two public letters, we now request further explanations on behalf of ALL stockholders:

• VOTAW FINANCIALS and TRANSACTION FINANCING. The board claims it is unable to provide "more information about Votaw's financial condition and results of operations," which leaves stockholders without key metrics to assess the opportunity against potential financing scenarios. This claim is rubbish.
  • Wynnefield demands to understand the margin of safety between Votaw's operating cash flow and the board's assumed long-term financing structure (or the board's philosophy on acceptable financing parameters) to pay for Votaw's potentially $110 million price tag.
  • Wynnefield demands to learn why the board allowed the 45-day termination period to expire without all or most of the financing structure in place beforehand. If any of the financing structure is in place, stockholders are entitled to that information and the board would be irresponsible to keep this a secret.
     
• VOTAW EARNOUT. The Earnout Payment is realized based on an EBITDA target to be achieved for just the first 12-month period of financial performance.
  • Wynnefield's strong preference is to establish earnout performance metrics realized over multiple years that better match TechPrecision's anticipated significant financial obligation payments. If Votaw's performance flounders any time after the first year of TechPrecision's ownership, the Seller's Earnout Payments are locked-in over the following years while TechPrecision is left with a potential mismatch between its operating cash flow expectation and financial obligations. Multi-year EBITDA performance targets keep a Seller engaged with "skin in the game" over a longer period and offers more protection for stockholders.
     
• OVERHEAD SAVNGS. The board claims," Our immediate plan is to start moving STADCO's operations into the Votaw facility towards the end of 2024, continuing into 2025…"
  • Wynnefield wonders why the board would allow critical savings to be delayed. This is another way the board's bad negotiations favored the Seller and their Earnout Payment (based on performance ending October 31, 2024) instead of prioritizing stockholders' best interests.
  • Wynnefield asks for explanation of how TechPrecision plans to serve critical STADCO customers during the potentially poorly timed relocation. Public statements by the Department of Defense and OEMs have made comments regarding the readying 2024 production ramps for Sikorsky's CH-53K heavy lift helicopters and Boeing's F15-EX fighter jets, two major military programs that STADCO contributes components. Moving STADCO's operations during late 2024 and in 2025 is a concern.
     
• CAPEX SAVINGS. Stockholders know of but are not "well aware of the deferred maintenance problems at STADCO" because these have not been publicly discussed in detail.
  • STADCO's CAPEX has been low. In the company's FORM 10Q, STADCO's capital expenditures totaled just $4,530 during the six-month period ending September 30, 2023. Per the company 10K report, STADCO capital expenditures totaled $725k in 2023 and $113k in 2022.
  • If TechPrecision can find financing to purchase a $110 million acquisition, surely the company should be able to fund a considerably smaller amount to support a recently completed acquisition. Stockholders might even expect that TechPrecision's STADCO due diligence should have aptly informed of future capital expenditure investments before the purchase. Lastly, on FY2Q24 (ending September) earnings call, TechPrecision's CEO stated, "…our delivery meets the expectations of the customers for both subsidiaries…that across the board for our key customers, we are not losing any confidence in any one of them…" suggesting STADCO was on firm footing.
     
• STADCO and M&A. The board's claim "even prior to completing the acquisition of STADCO in August 2021, it was our intent to relocate STADCO, whether by finding a new location or acquiring a compatible company."
  • Wynnefield would like the board to cite when management publicly informed the stockholders of STADCO's relocation and M&A strategy intentions.
  • STADCO's S-1 dated January 7, 2022 (nearly 4 ½ months after the acquisition), states, "In addition, Ranor's and STADCO's businesses will continue to maintain a presence in Westminster, Massachusetts and Los Angeles, California, respectively."
  • Further, the board's statement of "…or acquiring a compatible company" suggests that the board intended to execute on an M&A strategy, a significant undertaking for TechPrecision's new significantly leveraged balance sheet.

TechPrecision stockholders have been patient investors, but recent board actions have been devastating. While Votaw's valuation incorporates just recently improved financial performance, existing TechPrecision stockholders would give up full ownership of RANOR and STADCO just months before their production ramps up and after waiting patiently for years.

IT'S NOT TOO LATE TO EXPLAIN THE PROPOSED VOTAW ACQUISITION ON A PUBLIC CONFERENCE CALL AND TO COMMIT THAT STOCKHOLDERS WILL BE ABLE TO EXERCISE THEIR OWNER VOTE.

Respectfully yours,

Nelson J. Obus, Founder                   Robert D. Straus, Portfolio Manager

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Media:

Daniel Yunger
Kekst CNC
daniel.yunger@kekstcnc.com

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SOURCE Wynnefield Capital