Q3 2025 TAT Technologies Ltd Earnings Call
Speaker #4: Our net million dollars compared to 2.29 million dollars a year ago. Taxes on income for the quarter were 800,000 dollars versus minimal amount in the same period last income for the quarter was 4.8 year.
Speaker #4: The new US tax enacted under the One Big legislation modest effect on our result. While changes such as the restoration of 100% bonus depreciation and updates to the R&D expenses alerted certain deferred taxes positions, the overall impact of our effective tax was not significant.
Speaker #2: Goodbye.
Speaker #4: However, the main benefit of implementing the new act is an increase in the carry-forward losses that will enable us to deduct them through the first three quarters of 2026, preventing us from paying any taxes in the U.S. for an additional four quarters.
Speaker #4: While prior to the new act, we were supposed to start paying taxes by the end of this year, by the end of 2025. Our next financial expenses are close to zero this quarter, mainly due to a federal exchange rate difference between the Israeli shekel and the US dollar.
And finally, adjusted ibida increased by 34% to 6.8 million translating to an adjusted debit on margin of 14.6%.
A record adjusted ebida margin and a notable improvement from 12.4% margin in the same period last year, that continues to deliver operating leverage as a result of our disciplined expense management.
Moving to the cash flow cash flow from operation uh in the quarter was 7.5. Million driven by improved profitability and working capital efficiency, and disciplined cost management. For the first 9 months, cash flow from operation, was 9.5 million?
Representing any ibida cash conversion of 51%.
Turning into the balance sheet. Uh, we ended the quarter with 47.1 million in cash and 12.1 million in total debt. Resulting in a low depth to every, the ratio of 0.5 x.
Shareholders Equity is 2 that 170.7 million supporting a strong Equity to asset ratio of 76%.
Uh, I'm going now to discuss a little bit about the results by the by the key product segments,
In our Apu businesses, after a modest sequential decline from q1 to Q2, we saw a surge in intake in the third quarter with Revenue, increased by 39% year-over-year and 27% on a sequential basis on a year-to-date basis. Apu revenue is up by 26% from last year, aligned with our expectation. And Market penetration, uh, plan, heat exchanger Revenue increased by 6% between Q3 255 and Q3 of 2024 on a year-to-date basis. Revenue grew by 14%,
The increase in OEM is very stable and aligned with the industry growth. While Emerald growth was a little bit slow in the last 2 quarter, but expected to increase in the coming, uh, following quarters.
Uh, in the landing gear area Revenue, uh, more than doubled year-over-year and nearly doubled on a sequential basis, reflecting a surge in intake and operational ramp up validating our strategy of supporting this underserved Market.
As communicated in the past, the e170 Cycles. Uh started and we are well positioned with contracts that needs to be served in the next 3 years.
And last trading and leasing after a particularly strong second quarter. We done uh, both sequentially and year over year, basis reflecting normal quarterly. Volatility. As we explained in the previous earning call when a year to date basis trading a listing revenues up by 17%.
In summary, tat delivered, another period of solid growth and Improvement, improving profitability, supported by discipline expense management and strong cash conversion.
Our balance sheet remains a strategic asset. Providing flexibility to invest in both organic and inorganic growth opportunity.
And buy this. I'm returning the call back to our CEO. Mr. Zamir.
Thank you. The Border Aviation Market continues to experience a viability. But our diversification help of sets this Dynamics where we are not immune,
Is our agility.
And we have built the, the ability to adjust capabilities and capacity and resources in real time ensuring that we meet customer needs and sustained, operational efficiency even in a changing environment.
That adaptability remains 1 of our competitive advantages.
We plan to leverage our strong balance sheet to pursue acquisition that expand, our addressable Market, deep and customer relationship, and natural adjustments is to our platforms.
Um, over the past 2 years with significantly increased our long-term backlog. I expect this overall trend to continue as customer seek Nimble Partners to support their maintenance needs rfps activity as its own Cadence, uh, with quarter to quarter volatility much like our, uh, intake volume. But, uh, the overall trend is encouraging and I continue to believe that we are well, positioned to capture more market share.
Significant progress in relationship to our inventory level, helping to increase our cash generation capabilities, and I remain optimistic about the year.
That before opening the call for questions, I'd like to send to thank our employees for their professionalism and hard work. Their commitment continue to set a standard for the industry.
and,
Under sorry, another pins everything. Uh We've achieved I also like to welcome our new independent director, the additional reflect our border efforts to strengthen and diversify our board. As we prepare for the next phase of our growth. Over time, we expect to further expand the board with additional us-based and Industry oriented expertise to complement our strategy.
As now, I would now like to open the call for questions.
Matt.
You're on mute.
Thank you. Thank you for telling me about that. Um, uh and thank you go for, for those those remarks. Uh, as you know, we're now going to open up to uh, the Q&A session. We're going to be taking live questions, as well as submitted questions. As I know a number of you have been submitting them already. So uh, the first way to do this is to raise your hand by clicking that icon.
It's at the bottom of your screen, um, and then clicking this will alert us that you want to be called on to ask a Live question. And then you'll be placed in the queue and called upon, um, just note that you're going to be on mute until you're called upon.
The second way to participate in Q&A is to use the Q&A widget. I know a number of you are have already been doing so and that'll allow you to type in a text, uh, and text the questions. Uh, we'll take questions from there as well, but just note, if we run into a time, constraint someone from the team will get back to you. If your question is not asked on today's call, so with that, I'd like to pause a moment to build the queue
Please go ahead and raise your hands.
I'm Jonathan segment. Would you like to raise your hand? Or would you like me to read your question?
I'll go ahead and read uh uh Jonathan sigman's question from from steeple.
Uh, congrats on the strong quarter, um, strong results and strong cash last quarter. You explained how TAT was able to make use of the tariff-driven slowdown in MRO intake activity and switched to repair APU.
Um, can you talk about how, um, AT&T tat was able to flex your operating platform to manage this quarter's change in demand? We were particularly surprised by the more than doubling in landing gear, how should we think about Tat's Revenue capacity for landing gear mro activity?
I I figured I would like to answer this question more in a more broader perspective. As I stated every quarter, I remember starting to make the same statements in Q4 of last year and being very consistent about it.
I don't know that we can look at T on the mro portion of the at business on a quarter to quarter basis. There are many, many variables. And, uh, things are changing based on the factors that I stated earlier when I, uh, in my opening game out,
Um, I do think that we need to look at the overview and the landing gear, uh, was the landing gear. In case was expected. We started here. We stated it in previous calls. We are getting into a new cycle of landing gear. Overall uh, with expectation to substantial growth in Revenue, going into the coming few years. Nothing is new here. Uh, we saw it coming and it came um there there may still be fluctuations between quarter but the overall trend is very strong. Uh, and going back to the flexibility and how to adjust. And I think that I truly think that this is our biggest Advantage as a player that is not huge player like many of our competitors. Uh, it's
The ability to shift focus and to move employees and manpower from one area to another as needed, you know, with the fluctuations. And the question is, what do you do when...
When the intake is surprising, you, and comparing to the plan, uh, which happens quite often, and, uh, we became pretty good in, uh, diverting a Workforce in making sure that we are just fast.
Fast water was strong and we and I said the same thing. Um, I have no concerns whatsoever, whatsoever about the Apu intake. And we see this quarter with the substantial increase in Oppo. So, I think that when we look here over the year and the growth in all the segments, it's very promising, it's encouraging. And we see a continuing, uh, Trend moving forward, especially when we look at the backlog,
there's another submitted question. This 1 is from Ben cleave with benchmark.
Um, congratulations on another outstanding quarter, you mentioned your increase interest in looking at underserved mro opportunities. I understand that you cannot get specific about what these opportunities are. But can you please discuss the characteristics of these, um, opportunities and discuss? Why you think they've been underserved, historically?
So I think that the the, you know, the industry is over in overall especially of the last few years is going to uh postcovid the crisis and uh part shortages and uh big players that are struggling and ramping up. And uh many as an outcome is the there is a it's a more flexible that can get ready and demonstrate that they have the ability to adjust to the situation and and provide great service. So 1 of the 1 of the things that we are really proud of is the company in the last 2 weeks is the uh, dramatic Improvement that we have made.
Comparing to many of our competitors in our on-time delivery availability of parts. We made major investments in uh in inventory to make sure that we will have the right parts on time and we are performing well and as an outcome and a new capabilities that we uh, that we added on the Apu side. Um,
when when, the, when the market is struggling and when Airlines around the world are suffering from lack of capacity, uh, and you have the capacity and you are ready, and you can demonstrate performance,
Uh you gain, um you gain momentum when it comes to that position just to m&a activity uh that we are not just looking just to be clear and I would uh maybe elaborate on this for 2 minutes. So we are not we we are looking in in several verticals and not necessarily just on the M but also on the on the OEM side, um when it comes to M row,
We are looking to add value to our customers. I think that, uh, what we hear from the airlines around the world, is that 1 of the challenges that they are facing is with the relatively small, uh, uh, Supply Chain management, uh, team. They need to manage hundreds and hundreds of vendors around the world. And everybody is looking to to consolidate work and to grow where to work with the larger vendors, that can support them across more, um, more product lines. Um, so our m&a strategy, when it comes to MMO will be to look for companies.
Is that uh, that can add a high quality, uh, meaningful mro that we said that we could that we can add to our portfolio and be more meaningful to our customers.
um,
Kind of a general answer to the question. Having said this, as I said before, we are also looking um, for Acquisitions, on the, on the OEM side to expand our uh thermal system capabilities, expanding to new segments of thermal systems where we uh are not active today and become a more meaningful player in the thermal system mode.
Thank you. I'm, I'm going to, uh, summarize uh, question around, uh, backlog that I received from a couple of, um, investors. Uh, thank you to, and thank you, you've all for submitting them. Uh, essentially it's, you know that the backlog declined, uh, by a few million sequentially from last quarter? Uh, can you, can you comment on that?
Yeah, man. I almost I I don't want to uh to
I'm basically it's a non-issue. Uh, I think that if you look here today, we are way above where we start the day. We show the huge growth. We cannot we, we need to remember that we publish
Wins and add them to the backlog and LTA value only when we sign them.
And we cannot, you know, there are several factors. We cannot control when the airlines are opening the rfps. Uh, we cannot control when they determine, who is the winning bidder.
And in many cases, uh, even if we win, we cannot control when, uh, our legal team and the airline illegal team will eventually sign the contract. So we can publish, uh, so as I stated before we we we are enjoying a very strong. Uh, we are enjoying a very strong uh
The pipeline a larger than ever in the past and we will keep on. We will keep on um announcing and adding to the LTA uh, new wind, as we get them. And I'm um,
Uh, we we remain very optimistic about it. That's the only thing that I can say right now uh in the last 3 months we have we were not we didn't sign any any win yet. So uh so it we saw a tiny reduction but it's a non issue.
Next, there is a question from Chan, and a question from AIC that, I think relates to your exposure to the potential external disruptions, for example, um, how are your operations affected by the federal government shutdown? That apparently just ended um, or um, you know, is the grounding of some of the UPS and FedEx aircraft found the incident in, Kentucky expected to affect any loads and schedules, that your service centers
I think, I think that, you know, everything can have a, a meaning, every, every, every 1 of these interruptions or disruptions can can cause some short-term hiccups,
uh,
but when you look at the overall trend, none of them represent. Obviously, unless something turns into a macro Global issue or challenge, none of them should have any sustained impact on our growth patterns for for the future.
I don't see right now any any there is no drama here or any big impact with, with exception of, uh, you know, short hiccups even there
That that, that. And again, that we that we can easily in reality, we are overcoming them, because we have different product lines coming from different, uh, customers in a very large, customer base, and OEM versus the morrow, and, uh, and other factors. So, um, so far we haven't seen any major, um,
Uh, impact or concerns. That should be noted here.
Okay.
I have a follow-up question from Ben cleave at benchmark.
Uh, that, uh, that relates to the landing gear business, um, which is scaling and seeing some more happiness, uh, but you expect that the grumpiness is going to, um, decrease or perhaps even get more pronounced.
I am expecting it to stay as it is. Um, so again, the volatility between the quarters, but the overall trend is very strong.
Okay, uh, maybe can maybe I can add to it on the landing gear side. Uh, you know, we are trying to be more proactive, uh, with our customers and, you know, you always try to come up with a predetermined schedule of removals. And when exactly, they are going to park the aircraft to remove the gear and to replace. Um,
and, you know, looking at next year, uh, on paper, it looks great and very little volatility, uh, you know, from 10 from my 10 years of experience at T, the plan is great until they will start. And I always changes and unexpected events, you know, it can be that, I don't know why. Catering truck hit hit a hit, a gear in another aircraft. And now they have to change their. I'm giving this as a as a 1 example, but there are always changes in in surprises. So, I'm expecting volatility, but the overall trend and looking at where we are in the plan for next year, we, we expect to continue and to grow very nicely.
The next question is from, um, um, let go at Crescent, moey, from from truist, Michael. Um, please go ahead.
And mute please.
Operator. Can you speak?
Operator, can you assist in activating Michael?
Michael. Hi Michael. I think that we can hear you. Okay. Perfect. Uh, morning guys, nice results. Um, just on the margins uh really nice, uh, margin performance. I mean, it looks like the the operating level incremental is about 31%. I think you've you've kind of talked about the IBA margins, you know, 15%, you know, you're you're you're you're basically almost there can can maybe we think about, or can you share with us how you're thinking about further, operating leverage as you get some more volumes and maybe even, you know, do you think you can get some pricing to be additive as well?
You know, for those of you listening to the calls in the last 2 3, 2 and a half 3 years, I've been pretty consistent about saying that I believe that the best-in-class company in our line of business should be the, the 15% TV guy and above and yes Michael. If you stated, we are very we are getting there. Um,
Um, mainly due to operational efficiencies uh initiatives that we had and things that we are doing. Um
I'm happy to say that, uh, now that we are almost there. We uh, we still have a lot of opportunities and lot of initiatives to continue and improve the margin moving forward and I'm not even before increasing revenue or which which before increasing pricing. Um and um,
And uh, it's very high priority for us on our plans for uh for next year to complete to continue and improve our uh our efficiency to remove waste uh and to become a you know to to reduce purchasing costs and to become more effective companies. Some of it may be used to be more competitive in the in rfps and some of it uh will uh will result in increasing in in further increasing uh, the ibida and regarding pricing. We typically uh we try to be very careful about not using it as just as a tool because we are in a very competitive landscape and um and um you know we have
Obviously, we have escalation built a price, escalation built into our contract, but they are tied into predetermined indexes and uh, like labor and materials. Um, so prices are traditionally from. Looking in the years back, they were increased for year year over year, uh, but that's not something that we are using as a tool for margin.
Got it. Okay, helpful. And then, just just if I may um, you know, you guys break out. Um, your percent of Revenue is by mro and OEM and it, it looks like if I look at the OE percentage, it was it was up year-over-year, maybe close to 3%. And I just wanted to know your products on the thermal side, you know, where you've got 737 exposure. You know what? What are you seeing there? Now that that Boeing is gotten the FAA approval to rate break higher. Um, is there any beef stocking? Do you see any inventory or do you think that that side of your business starts to grow? As we see the volumes increase on the max
I yeah, I I think that Michael I think that um,
The specifically, if you talk about the, the Max and our effect, there is a minimal impact. Uh, but that's something that, uh, that we'll have any dramatic impact on the future of business, 1 way or the other. I can say that if you look at overall, um, aircraft production rate, and
our OEM business, our OEM, obviously, our our, um,
a business is growing in a linear line together with the increase in production rates. Um, so again, I'm not without going into any specific platform. If you look across the board, there's uh, you know, if you look at the book of orders and planned capacity for bowling Embraer Textron and others. Uh, we we we are enjoying it and we plan to hopefully we will continue to enjoy it in the years to come if because we, we see more, we see an increase in in pose.
Got it. Got it helpful. I'll jump back in the queue guys. Thanks
Thank you, Michael. Uh, the next uh question is a 2-part from Richard k, um, who said, uh you generate strong cash flow again, is that sustainable and how would you characterize your balance sheet strength today?
So, I'll I'll answer the first question about the cash flow. I know the, if you may may want to answer about the balance sheet. Um, I think we, we spoke about it, last quarter. Um,
We wanted to make sure that we will be ready to the customer. So we made strategic decisions to dramatically increase inventories and and few other things there to support our customers that were as they were in as they were struggling. Um, and that's what I mentioned that. Um,
We are in a very healthy situation today that uh we don't believe that we need to increase and we can turn more of the of uh, of the iida, uh, Into Cash. Um,
We don't need to continue increasing inventory as long as we don't. Uh, go into a new product line that really require a new line of inventory per inventories. We, we are now a deposition that we can start moving the inventory faster and increase inventory turns rather than inventory. Overall inventory increases from a capex perspective, we are
We made substantial investments over the last four years. Uh,
And getting ready for the growth uh facilities equipments and and everything else that was required.
And um I think that we are moving more. We are scaling back because we already we are we feel that we are ready with what we need uh for the next year or 2 and uh so the substantial Investments are kind of behind us. They're all there is always going to be a certain level of investment mainly
Focus mainly focus on 2 aspects, you know, the the maintenance, let's call it maintenance capex and um, and the second type is capex associated with continuing to improve our efficiency.
Um, we are, but all in all, we see a substantial reduction in capex needs, and this is also going to impact the cash. So I, uh,
Again, Kashmir fluctuate, mainly based on, uh, collections versus payments from quarter to quarter, but we do expect to continue and enjoy very strong, uh, cash flow. And I wonder if you would like to address the balance sheet.
Yeah, thank you. The, the I'm expecting the balance sheet to continue, all the equity ratio to balance sheet to continue. Stay very high and very strong in the area of 70 to 75% in the coming quarters.
Uh, giving the profitability for cost and the capital, the working capital needs that we're seeing. Uh, I must say that, however, as we indicated in the past, that in case we will execute an acquisition deal. Part of the part of financing of this deal will come from, uh, from that, uh, leverage. And this will, uh, change a little bit, the ratios, in the balance sheet.
We have a follow-up question from Michael CRM, moi.
from, um,
Uh from truist Michael. Um please unmute your line and uh proceed with your question.
Hey um, can you hear me guys? Yes, yes. Okay perfect. Um, just just to follow up, I think last quarter. I mean, you had a really good landing gear performance assuming that the internal uh, supply chain challenges. And inefficiencies you've had are, are kind of totally resolved and then just the just 1 more on the apis wanted to know
Know what you're seeing on penetrating, the market for the 131. Thanks.
Okay, you was asking about the 131 specifically uh, we we are currently, you know, we we have uh, um, several opportunities that we are trying to build on. Uh, we haven't won any meaningful in the last, uh, so far. I would say we haven't won any meaningful, uh, RPA the opportunities out there. And, um, you know, we we still have some learning curve, the demand is there, the, the rfps are coming and, um, I believe that with time we start showing a substantial uh, substantial growth.
we just we are basically um you know, at the beginning if you will
Got it as we stated in the last few quarters.
Perfect.
Uh, thanks guys. Appreciate it.
We have an additional submitted question which is asking about the supply chain and whether a conditions and capacity utilization. Um um are improving or how are they trending?
I I would say it depends, it depends on the product lines. Um, you know, I believe that on the, thermal components supply chain, where we purchase basically raw materials, uh, since supply chain pretty much stabilized to where it used to be preco,
Uh, no major storage there and, uh, apis and landing gear. Still, no Apu is more reliable, but still very long lead times, uh, from the vendors and, uh, on the landing gear is still, uh, unstable.
Most both both on the lead time and reliability of the vendors.
So different phases. All in all, I can say across all product lines. The the trend is very positive but uh, we are not there on the apis and lending G. The industry is, uh, is not where it needs to be.
Um, you know, can you make I guess? So I'm looking at the question. Can you talk about the um, sort of the mix of gross margins across your businesses? Um, because these observing that um you know, some of the the gross margins, you know, excluding Leasing and trading. You know did did increase substantially over the quarter and just wondering what that mix looks like.
The process of businesses.
And would you like to address it?
Yes, do you hear me?
Yes, I'm sorry. My line is not so good. Could you please repeat the question, Matt? Yeah, the question would be just, you know, maybe a comment on how gross margins varies across the various business lines, um you know, because there was an observation about the the the increase in Gross margins. This quarter um, excluding Leasing and trading
Yeah. So obviously what do you what you saw? And again I don't want to
I don't want to uh make a long-term point on on 1 quarter. We need to look at the trend of the couple of quarter in order to determine our mind. What's going to be what is the right goal of margin because
Uh, product mix is playing and the level of uh, on the level of each. Uh, Revenue within the segment is also determining the goals, uh, profit due to our operational leverage. But in general, I would say that in this, uh, segment. We see an improving. Uh, we see a trend of improving in the growth margin.
And then again, uh, looking uh, looking for the looking for the long term, we we expect the margin in this segment to go up a little bit.
Um,
and it it is mainly due to all of the things that were mentioned the during the, the Page by G and me, while we have a lot many plans of
Improving operational efficiencies. We are, uh, also leveraging our employees utilization. And also again, uh, having more work, more revenue on the same label is improving by itself. The, the gross margin
Uh you know if you look at the maybe just to add few things, first of all, just to add to what I would say. Um,
Looking at gross margin from a quarter to quarter is almost impossible because even within the same product line within within everything. If you compare apples to apples between the quarters, you have different customers with different margining. We need to remember that on the mro side. Uh there are lots of variations on the OEM once you once you have a deal and it's closed and you have the supply and you know, the cost it's pretty much stable growth margin. Uh, you know what to
Respect. Um, when you receive an engine for an overall, uh, with hundreds of different parts that needs to be inspected, there is a huge variance between 1 engine to the other, uh, sometimes you get the engine and it's very easy and you replace few parts. And sometimes you get a what we call a very heavy shop, visit, uh, with many parts and and you need to remember that many cases our pricing to our customers are fixed, customer fixed pricing. Uh, basically, it's built built on a statistical model, um, over time. Uh, but sometimes you get all it takes is 2 3 engines with very heavy. Uh, replacement and the margin. This water is going to look uh uh, less favorable and the following quarter. You got some light engines and everything is going to look great. So it's very risky to not the right approach in my mind. I would say to Kerr quarter to quarter, but rather, to look at the long term, and the long term trend,
Thank you. Both the final question before we turn it back to you igal for concluding remarks is from, um, Robbie from ethics files Capital. I'm asking how should investors think about Q4 and 2026
So as I started in the beginning, I'm going to talk on about 2026. Uh, we we are very optimistic. Uh, you know, the trend is strong, we have a very strong backlog as you see in the numbers. Uh, we have a very large pipeline of opportunities.
In different stages. Uh, significant amount of potential business that we believe that we are going to some of it at least substantial portion of it. We can secure and the market trend is continues to be strong. Both OEM demand is growing uh, and the Amaro needs are there. Um, we so all in all all this, all the indicators are, uh, are very positive and we are continuing to increase our, um, our internal efficiency. So we we remain very optimistic about, uh, the the ability to continue and to grow the business next year. And
I think this is the best answer that I can that I can give right now.
Hey gal, now turning to you for concluding remarks.
So just a final remarks. First of all, thank you for joining us today. Uh, the financial performance, uh, in the quarter, further validates, our business model and strategy. We are currently uh, participating in multiple rfps, as I started 2 minutes ago, and the growth opportunities were pursuing, give us giving us the confidence in long-term. Growth trajectory 480.
Uh, on top of these, we believe, uh, these are, that are opportunities to accelerate our goals and increase our scale to targeted and strategic and activities.
And, um, I continue to think we are in a better position than many others in the industry. Uh,
For long-term growth. And I mean, basically, we confident in our future,
So with that, I just want to thank everybody again for joining us today.
And happy to answer further questions we are.
Thank you everyone for joining us today. You may now disconnect your lines.
Thank you. Bye.