管理層發言
Good morning, and thank you for joining the TAT Technologies Second Quarter 2026 Earnings Conference Call. This call is being recorded. My name is Matt Chesler with FNK IR, a U.S.-based Investor Relations firm supporting Eran Yunger, TAT's Head of Investor Relations. Joining me today are Igal Zamir, TAT's President and CEO; and Ehud Ben-Yair, TAT's CFO. Before we begin, I'd like to remind you that certain statements made on this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These statements are based on current expectations and assumptions and involve risks and uncertainties that could cause actual results to differ materially. Additional information regarding these risks and uncertainties can be found in our filings with the SEC, including our most recent Form 20-F. TAT assumes no obligation to update forward-looking statements, except as required by law. Investors are cautioned not to place undue reliance on these forward-looking statements. During this call, we may disclose certain non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are available in our earnings release issued earlier today and in our Form 6-K filed with the SEC. And with that, I'll turn the call over to Igal.
Thank you, Matt. Good morning, everybody, and thank you for joining us. We appreciate your continued interest in TAT. The strong second quarter marked an important inflection point for TAT. We delivered another record quarter, converting strong demand into the highest backlog in our history and grew revenue by nearly 23%. Improving supply chain conditions allowed us to convert previously constrained customer demand into revenue, further bolstering our strong performance while continuing to expand profitability and grow our record backlog. TAT's competitive position continues to strengthen. We are becoming an increasingly important aftermarket partner to airlines, OEMs and MRO providers, leveraging the breadth of our capabilities, the quality of our execution and long-standing relationships across the aviation ecosystem. An important milestone this quarter was the expansion of our strategic relationship with Honeywell Aerospace. We are now Honeywell's sole global authorized distributor for spare parts for the 331-200, 250 APU platform. We also extended our MRO license for that platform to 2036 and acquired 3 Honeywell Aerospace 131-9A APUs to expand our trading and leasing business. The expanded Honeywell agreement adds a distribution capability we didn't have on this platform before. Historically, we supported the 331-200, 250 platform through MRO and service alone. And now we are also a parts supplier, giving operators, lessors and MRO partners one source across the full lifecycle from parts to repair and return. Also, extending the agreement to 2036 further strengthened the long-term visibility and secured the profitability of this important business while reinforcing one of our most valuable OEM relationships. When it comes to the industry, commercial aviation fundamentals remain exceptionally healthy. Aircraft are staying in service longer than historical norms. Utilization rates are high and operators continue to prioritize reliable aftermarket support. These trends continue to support healthy demand across our repairs overall and components business. While supply chain conditions have improved significantly, they have not fully normalized. We will continue to prioritize customer support even when that requires targeted inventory investment or higher procurement costs. Although these actions have somewhat dampened our profitability gains in the short term, they help keep the aircraft in service and reinforce our reputation as a trusted aftermarket partner. We expect inventory requirements to become more efficient as the supply chain continues to improve. We believe that investments we are making today will strengthen customer relationships, expand future business opportunities and create long-term value for our shareholders. On the strategic priorities and M&A front, M&A remains an important component of our long-term growth strategy. We see acquisition as a way to expand our MRO capability, strengthen our thermal system business and broaden our platform portfolio and, finally, establish a greater presence in geographies that bring us closer to customers. These opportunities have the potential to enhance our competitive position while expanding our relevance across the global aviation aftermarket. We believe that we are well positioned to execute this strategy. Our strong balance sheet provides the financial flexibility to pursue acquisitions, while our operating platforms and integration capabilities enable us to successfully incorporate complementary businesses. As always, we remain disciplined on valuations and strategic fit, and we will not pursue acquisitions simply for the sake of growth. Our M&A efforts continue to move front and center. We have built a robust pipeline of potential acquisition targets, completed initial due diligence on a number of opportunities and are actively evaluating them. M&A is becoming an important focus of our team, reflecting both the quality and the opportunities we are seeing and our commitment to execute this important element of our long-term growth strategy. In terms of the outlook for the rest of the year, our performance in the second quarter and the first six months of 2026 demonstrates the progress we have made and the strong position TAT occupies in the industry. Customer demand remains exceptionally strong with our record backlog of $650 million, providing excellent visibility into future revenue. Simultaneously, supply chain conditions continue to improve, giving us increasing confidence in our ability to convert our record backlog into revenue while maintaining service levels to our customers. Building on the existing relationship, we continue to strengthen our competitive position through expanding OEM relationships and broader platform coverage, highlighted by the recent Honeywell agreement, which enhanced our service offering while extending an important long-term partnership through 2036. Finally, our strong balance sheet provides the financial flexibility for strategic acquisitions that can further expand our capabilities and addressable market. Taken together, these factors reinforce our confidence in TAT's ability to continue delivering profitable growth while creating long-term value for our shareholders. With that, I will turn the call over to Ehud for a more detailed review of the financial results.
Thank you, Igal, and good morning, everyone. Good afternoon for the guys in Israel. As noted, the second quarter benefited from strong demand and the record backlog. Also, the improvement in the supply chain environment enabled us to convert a significant portion of work into revenue as supply constraints eased. We have won several new contracts. We are now starting to see the benefit of these wins flowing through our financials. All in all, it was a great quarter. That said, while profit margin improved, our operating leverage would have been higher if not for some ongoing supply chain issues and the weaker exchange rate of the U.S. dollar against the Israeli shekel. Second quarter revenue was $52.9 million compared to $43.1 million in the second quarter of 2025, an increase of nearly 23%. All product segments contributed to the growth in this quarter. Demand remains exceptionally strong as reflected in a record backlog and long-term agreements, which increased to a record of $615 million at the end of June 30, 2026. Gross profit increased by 23% year-over-year to $13.3 million with gross margin remaining above 25%. This reflected healthy pricing and operating execution despite continued supply chain inefficiencies that increased procurement costs in certain product lines. We are closely monitoring the supply chain issues, which are impacting revenue growth while we continue to maintain full service levels for our customers. We still have low visibility on when supply chain issues within certain segments will be resolved. Operating income was $5.6 million or 10.6% of revenue compared to $4.4 million or 10.3% of revenue in the second quarter of 2025. With parts availability in certain areas of our business remaining challenging, we have continued to prioritize customer delivery schedules by securing certain components at higher cost when necessary. Absent the ongoing supply chain challenges, our margin expansion would have been even stronger. We continue to invest in the company's growth, infrastructure and M&A capabilities. This led to an increase in SG&A expenses. We also continue to invest in the development of future thermal systems, resulting in modestly higher R&D expenses. Net income was $8.1 million compared to $3.4 million in the second quarter of 2025. Diluted earnings per share were $0.61 compared to $0.30 in the second quarter of 2025. The second quarter of 2026 included a nonrecurring one-time gross gain of approximately $4.3 million from the sale of a minority interest in an unconsolidated entity and a nonrecurring charge of $900,000 related to tax expenses. The net impact was $3.4 million on the net profit. Excluding the nonrecurring gain from the minority interest sale, net income was $4.6 million or $0.35 per diluted share. The foreign exchange of USD against the Israeli shekel was a headwind in the second quarter of 2026. The strength of the shekel to the U.S. dollar during Q2 led to foreign exchange losses of over $600,000. We are working with our customers and suppliers on finding solutions to these issues without harming the flow of operations in Israel. Adjusted EBITDA, excluding the one-time gain was $7.4 million or 14% of revenue compared to $6.1 million or 14% of revenue in the second quarter of 2025. For cash flow, cash used in operating activity was $0.6 million compared to positive $7 million in the second quarter of 2025. A portion of the revenue that we recognized had not yet converted to cash collection by quarter end, and we expect that to convert during the third quarter. Working capital requirements are expected to remain elevated in the near term as we support the expanded distribution agreement through strategic inventory investments. We view these investments as an attractive use of capital to support future revenue growth. Briefly summing the results for the first six months of 2026: revenue increased by 10.4% compared to the same period in 2025 and reached $94.1 million. Gross profit increased by 12.4% to $23.4 million. This represents 24.8% gross margin, up approximately 40 basis points year-over-year. Operating income was flat at $8.6 million. Net income, which includes a $3.4 million one-time benefit, increased by 58.1% to $11.5 million. Excluding the nonrecurring benefit, net income would have increased approximately by 11% to $8.1 million. Diluted earnings per share, inclusive of the one-time gain, were $0.87 versus $0.64. The one-time gain represented approximately $0.26 in diluted earnings per share in the current period. Adjusted EBITDA, excluding the one-time gain, increased by 4.1% to $12.3 million or 13.1% EBITDA margin. For the balance sheet, our balance sheet remains a competitive advantage. We ended the quarter with net cash of $43 million with a 0.2 debt-to-cash ratio and 0.43 debt to last four quarter EBITDA ratio. We also recently secured a new $100 million five-year revolving line of credit with several U.S.-based banks, giving us significant flexibility to support our M&A strategy and future growth of the company. Diving into the product lines, heat exchanger revenue increased by 7.8% in the second quarter of 2026 and 4.2% in the first half compared to the same period last year. The heat exchanger business is both OEM and MRO and the growth is single digit and steady according to our expectation. In APU, this quarter's results are affected by the supply chain recovery as communicated on the previous earnings call as well as by new long-term contract wins. We expect to continue the positive trend. Overall, this product line grew by 22.2% in the first half of 2026 despite the supply chain impact. Trading & Leasing increased by 17% this quarter with several good trades and steady revenue from leasing activities, which will now benefit from three additional 131-9A engines that were purchased, ending the year at about 5% of our total revenue. Landing gear is still affected by supply chain constraints. To summarize, the backlog is at a record level. We announced two new and important contracts with customers that include both the legacy platform and the new platform. Gross margins continue to be stable above 25%, and the balance sheet is positioned to support our growth strategy. The supply chain is improving and has incremental improvements, and we are very optimistic about TAT's future in general and especially for 2026 results in particular. And with that, I will turn the call back to Igal.
Thank you, Ehud. Before we move to questions, I would like to thank our employees around the world. Their professionalism, especially the close coordination with our customers and the suppliers this quarter, is what makes results like this possible. As we close, there are three quick takeaways. First, our fundamentals have never been stronger. Customer demand keeps growing and backlog and long-term agreements reached a new record. Second, we are deepening our competitive position. Our expanded relationship with Honeywell adds new distribution rights and extends our MRO authorization through 2036. And third, our balance sheet gives us flexibility to grow organically, but more importantly to support our strategic inorganic growth to create long-term value for our shareholders. We are entering the second half of 2026 with more momentum, more visibility and a stronger competitive position than at any point in our history. I would like to thank you for your continued support, and we look forward to updating you on our progress. With that, I will turn over to Matt for questions.
Thank you, Igal. We're now going to open up to the Q&A session. First question is from Jeff Van Sinderen at B. Riley Securities. Let's move on, and Jeff, you can jump back into the queue. The next question is from Josh Sullivan at Jones Trading. Let's move on to the next question. The next question is from Ben Klieve at Benchmark.
分析師問答
All right. Is that working? Can you guys hear me? First of all, congratulations on a very good quarter here. First, I have a question about the APU business and the parts availability dynamic. I'm curious if you can give us a bit of context around the number of APU units that have been sitting awaiting parts availability to unlock. So I'm curious if you can level set us on where the number of units waiting to be worked on ended 2025, kind of where that peaked at the height of the parts challenge earlier this year and kind of where that sits right now.
I think that if you come to the Greensboro facility, give or take at any time, you will see a couple of dozens of APUs in the shop in different stages. Those of you who visited us when we had the Analyst Day in Greensboro, back then we had about 50 to 60 in the shop on a given day. We peaked at the end of Q1 because we had several engines that were ready to ship but were missing the last part that we couldn't source. Obviously, all these engines were shipped during Q2. The overall amount of engines kind of normalized a little bit after that. But at any point, even at the end of the second quarter, if you show up at the facility, you will easily see 40 to 50 engines on any given day. I would say that now it's back to normal. You need to remember that the other factor is that we won several new businesses, which we published. So obviously, with new customers sending more engines, you should expect to see a gradual increase in the amount of engines in the process each week.
Got it. Very good. That's very helpful. And then for my follow-up, and then I'll get back in queue: also around the parts availability dynamic. One, were the second quarter results kind of a positive surprise for you relative to where you thought this may end up during your fourth quarter call — i.e., did parts availability come in faster than you were expecting? And two, can you give us any context around your expectations for when this will fully normalize on a full-quarter basis, if you even have that visibility?
I have to split my answer into three different levels or parallel tracks. On a macro level, what we see in the industry more and more is that parts producers or raw material producers are extending their lead times. There is a lot of pain around on-time delivery and some vendors are choosing to increase lead times so they can meet their turnaround or delivery expectations. So that's one factor that affects you because when they announce a new extended lead time, it creates a rupture in the system. Some of the OEMs that were used to keeping very large inventories to support shops like ours are also under pressure to reduce inventory, and as a measure to reduce their inventories they are aligning more with their subcontractors' lead times and the availability or ability to react quickly to changing demand. We need to remember that on the OEM side, it is fairly easy to project and to anticipate six to twelve months in advance and to provide the vendors enough lead time, and generally speaking, we don't have problems there at all. OEMs have stabilized as a general thing. But on the MRO side, because of the nature of the business and because of large fluctuations in part demand between different airlines and different times of the year, there is much more volatility, and that's more challenging. Now that lead times are expanding, it becomes more and more challenging. The last factor is the specific crisis that we had in Q1 with one major OEM that just couldn't ship. When we announced it first time in our annual results, we said we had a problem and we didn't see the light at the end of the tunnel, but we received a lot of promises for recovery, which took a long time. Eventually, they caught up. So this major crisis that we experienced in Q1 is behind us. And now we are encountering general supply chain challenges in MRO and aerospace with extended lead times and the need to forecast much more in advance, which is difficult — to know what you will need and when you will need it to give vendors enough time to react. So obviously, it's a challenge, and we are adjusting our systems to these new expectations and lead times, mainly affecting landing gear and APU.
And the next question is from Alexandra Mandery from Truist.
Great results. I was wondering how your progress is on gaining content on APU MRO for the Boeing 737 and A320 series. What is your strategy to gain content there? Has it shifted at all over time?
I think I remember you asked a similar question three months ago on the last call, and it's pretty much the same answer. We are gaining traction on the 500 engine. On the Boeing 737 and the Airbus A320, it's more one-off opportunities than long-term contracts. Given the very competitive nature of the 131 platform, that's expected. I don't anticipate any major shift; we compete on RFPs and hope to win some, but we are not targeting the large airlines as a key growth opportunity for this platform.
All right. And then are you seeing any impacts of higher jet fuel prices or conflict in the Middle East impacting your customers or the business? What have you heard from your airline customers?
Obviously, they are concerned about it, but we haven't seen any impact. If you look at industry data, utilization of aircraft is in a very healthy position and fleets are flying. It puts some constraint on airline profitability, but it doesn't affect their need to keep the fleet flying. Utilization is high, so it doesn't affect MRO in general.
Let's now answer the question from Josh Sullivan at Jones Trading, who submitted it via chat. Here's the question: With the supply chain improving here, how do we think about backlog conversion going forward? Should we expect the impressive backlog to release here? Or can it extend even as you deliver more? Can it expand even as you deliver more?
Ehud, feel free to add after, I'll give my two cents. As a general thing, the vast majority of the backlog increase is in long-term agreements. So we're not expecting any miracles quarter-over-quarter. Q1 was a one-time dip that we recovered from. Moving forward, any new win that we publish is going to be spread over three to five years, and we are expecting steady growth, not a major jump. There was a little factor this quarter of specific backlogs of engines that were stuck in the bidding and we couldn't bring them to the finish line; obviously, we recognized them in Q2. But looking forward, I don't see any indication today that suggests a large jump is expected. Ehud, do you have further color to add?
Yes. The only thing to add is we want to make sure that the audience and the analysts understand this quarter had some catch-up from the previous quarter. So for those trying to understand the past and forecast the future, it's useful to look at the average of the first six months of the year rather than thinking the second quarter is the baseline for the future. Obviously, the company will continue to grow, but I want to make sure people understand exactly the results.
Josh's follow-up question is on M&A. He's asking what leverage levels are you comfortable with? And what areas are in strategic interest at this point? Does the extended lead time dynamic influence your M&A thoughts as well?
Ehud, would you like to take it?
Yes. With M&A in general, we are making very good progress and have a healthy funnel of interesting opportunities. As I said, we are very disciplined. We define the strategic deals we're looking for and the prices we're willing to pay, and we'll remain very disciplined. I'm very encouraged by the funnel. Regarding the financial aspect, any deal we execute will be at a lower multiple than what we are trading at today. We usually aim to finance acquisitions with 50% debt and 50% proceeds from capital markets. We're not going to expose the company to excessive leverage; we want to keep it healthy and not take undue risk.
Let's move back to a live question. We have Jaeson Schmidt from Lake Street.
Just curious if you could discuss the supply chain dynamics in the landing gear market. I know you had some open work orders last quarter, but given the sequential and year-over-year improvement in the landing gear business, should we take that the supply conditions have eased there as well?
Jaeson, first, let's remember landing gear is a very small portion of the business, about 5%. We don't see the recovery as broadly reported in recent quarters. The dynamics we see are a drastic extension of lead times, in some cases to more than 12 months, which has a major impact on the ability to adjust to needs. These are very expensive parts. You need to remember that on landing gear, unlike the APU where you can use USM parts and find market solutions when an OEM gets stuck, landing gear has much more reliance on new parts from the OEM. When these parts are not available, you cannot complete the work. We don't have visibility on when this trend will stabilize, but it is significantly affecting the landing gear business.
Understood. And then just as a follow-up, can you help us think about operating expenses and that trend through the second half of this year?
Yes. As we discussed in the second half of last year, we invested in establishing infrastructure to support strategic growth and M&A. We expanded our overhead at the group level in a meaningful way in the second half of last year in preparation. Obviously, we are working very hard to advance M&A and to show the first deal when we are ready. Moving forward, I think we have the infrastructure today to support the growth, and as we continue growing, it will help us improve operating margins.
The next question is a follow-up from Jeff Van Sinderen at B. Riley.
Great. Can you guys hear me now? Let me add my congratulations on the strong results for the quarter. Just wanted to circle back to supply chain for a moment. What still needs to happen for normalization there? Are there specific remaining bottlenecks that you're working on? And what do you think is the timeframe for normalization?
That's a tricky question because in most cases we are dealing with OEMs that have their own supply chain challenges. It's a pass-through from subcontractors to OEMs, not something we can directly impact. When it comes to direct materials from the source, such as raw materials for our thermal components, those have stabilized and we have no issues. When it comes to parts sourced from OEMs that have a large network of subcontractors, some subcontractors are struggling to catch up after COVID. Many small subcontractors disappeared or shut down during COVID, creating single-source dependencies that now require new sources and lengthy certifications, which is a long process in aerospace. That's my personal observation, and our relationship with OEMs and what they tell us informs what we project to the market. Another factor affecting some businesses is the market for USM parts. In normal times there is a large market of USM parts available as a substitution for OEM parts when there's a shortage. These days, retirement of old fleets is much slower because airlines are forced to keep flying older fleets, so everyone is searching for USM parts, which makes them much harder to find and more expensive than in the past. We see this dynamic across the industry and many competitors and players are observing the same. The only thing we can do is to increase our inventory significantly to keep buffers and deal with these disruptions.
Okay, that's really helpful. It seems like you're handling it effectively. Could you elaborate a little more on your expanded relationship with Honeywell and how you expect that relationship to benefit your business in the future?
First of all, the relationship with Honeywell is extremely important to us. APU is one of our strategic product lines and represents the fastest growth opportunity for TAT. We made great strides on the 250 platform over the last few years and are growing this engine type very quickly. Now with distribution rights, it gives us the full capability to support the ecosystem, not just providing MRO services and leasing, but also supplying customers and industry partners, including competitors, with parts when they need them. I see it as an opportunity to grow our distribution business. This is the first time we will scale distribution on this platform, and we expect to gain proficiency that we can apply to other distribution opportunities in the future. The extension of the agreement for six more years is a critical component and provides a lot of visibility and helps us secure profitable growth for the next decade.
We have a question that was e-mailed in from Sergio Heber, who's asking us to walk through the working capital dynamic in the second quarter in terms of operating cash flow. And related to that, is there anything we should be thinking about in terms of working capital and cash flow as it relates to the expanded relationship with Honeywell?
Yes. The operating cash flow in the second quarter of 2026 was impacted by two main things. First, continued increases in inventory as explained before: we started purchasing inventory for the distribution deal and strategically invested in inventory in areas where we felt shortages and risk in the market, in order to avoid a repeat of the Q1 situation. Looking forward for the rest of the year, I'm expecting inventory to continue growing; again, that's a strategic decision and will have some impact on working capital. On the other hand, there were several deals not collected during the second quarter that were pushed for collection into Q3, which will create a positive impact on cash flow. So overall, I'm expecting operating cash flow to continue trending this way: inventory growth on one side, and collections catching up on the other. As the CFO, I'm not concerned. We have enough cash, we are generating profit, and we have internal resources to deal with these demands without increasing any line of credit or taking excessive risk.
Thank you, Ehud. With that, there are no more questions in the queue that haven't already been addressed at some point during the conversation today. So with that, we are going to bring the conference call to a close. I wanted to thank everyone for joining us today, and we look forward to keeping you updated on the company's progress on future earnings calls. With that, you may now disconnect your lines.
Thank you very much.
Thanks.