TAT Techs Q1 2026 Earnings Call Transcript

TAT Techs (NASDAQ:TATT) released first-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below. Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more. View the webcast at https://us06web.zoom.us/webinar/register/WN_96W3fxGKQLi2X-RYGkzidg#/registration Summary TAT Technologies Ltd reported a backlog increase to $580 million due to new contracts and strong customer demand, despite a slight year-over-year revenue decline attributed to supply chain disruptions. The company is focused on margin expansion and M&A, having built a team to source and execute transactions, aiming for strategic acquisitions to strengthen its platform. Management remains confident in growth for 2026, citing strong demand, resolved supply chain issues, and strategic investments, with expectations for revenue and EBITDA growth intact. Full Transcript OPERATOR Good morning everyone and thank you for Matt Chesler (Investor Relations Representative) joining the TAT Technologies first quarter 2026 earnings conference call. This call is being recorded. My name is Matt Chesler with FNKIR, a US based investor relations firm supporting Ilan Younger, TAT's Head of Investor Relations. Joining me today are Igal Zamir, TAT's president and CEO and Ehud Benier, TAT's CFO. Before we begin, I would 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 20F. 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 also discuss certain non GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are available in our earnings release and issued earlier today and in our Form 6K filed with the SEC. With all of that, I'd like to turn the call over to igal. Igal Zamir (President and CEO) Thank you Matt. Good morning everybody and thanks for joining us. We appreciate your continuous interest in TAT. TAT Technologies entered 2026 with a robust operational foundation and the record customer demand in the first quarter reinforced our confidence in the trajectory we are on. Demand for our services has never been stronger and the value of our long term agreement and backlog reached an all time high growing to approximately $580 million at the end of Q1 reflecting new contracts win and strong customer intake in Maintenance, Repair, and Overhaul (MRO). We continue to make significant progress on our organizational infrastructure and operational plans for margin expansion. M and A remains key priority. We establish a team with direct industry relationships and operating experience required to source and execute the right transactions in this market. We are not in a rush, we are building towards the right outcomes in parallel. During Q1 we experienced supply chain disruptions leading to delays completing open work orders and deliveries. As a result, our revenue slightly declined year over year, not fully utilizing our growing backlog. We expect this obstacle to be resolved in the next few months allowing TAT the growth trajectory. I will walk you through what drove the quarter, what remained fully intact in the business and how we are thinking about the balance of 2026. Ehud will then take you to the financial details. Let me begin with the backlog because it's the most important signal that we can give you about where the business stands today. Backlog and long term agreements increased to $580 million as of March 31 from $550 million at the end of 2025. This is a record for TAT and mostly related to new contract wins when it comes to ongoing Maintenance, Repair, and Overhaul (MRO) demand. To give you a sense of the magnitude of the timing dynamics, we ended the quarter with approximately $15.5 million of APU and landing gear open work ordered at our shops. We estimate that the material portion of this work, which was near completion but could not be released due to missing components, would have been shipped and recognized in the quarter if part has been available. Switching to the first quarter results. So turning into the quarter itself we have a slight decline in revenue year over year. As explained, this softness reflects constraints in components availability from some key OEM partners that delay the completion of release and the release of units in APUs and lending gear operations. The APU components in question are not technically complex, they are standard commodity level parts, but until they arrive, units cannot be released. The associated work remains under contract volume or shifted into future period rather than being lost. The demand is there, the contracts are there, the capacity and workforce is there and our confidence in a full year revenue and EBITDA growth remains intact. Ehud will walk you through the financial details in a moment, including margin, performance and cash flow, both of which tell the more complete story about the health of the business. For the client commentary, let me briefly walk you to the performance across our service line in heat exchangers, we continue to see growing demand. Q1 of 2025 revenue reflected the huge effort to close late orders from 2024. The following quarters of 25 and 26 reflected the ongoing demand for both our OEM and Maintenance, Repair, and Overhaul (MRO) customers. Even against this higher base of Q1 25 we look into 26 and are seeing increasing orders in OEMs and Maintenance, Repair, and Overhaul (MRO) market. This business benefits from our more than 60 years of OEM and Maintenance, Repair, and Overhaul (MRO) experience, long term supply relationship and diversified commercial and different customer base. It continues to generate consistent recurring demand and remains the foundation of the platform. In the heat exchanger business we achieved an operational milestone this quarter delivering more than 97% of customers order on time in APU. intake was at record level at this quarter. We won business and added new customers. We are seeing increased flow of newer engine platforms and we exited the quarter with more contracted work than we entered, achieving a higher level of book to build than usual our customer relationships are strong. We continue to support and engage customers even when the final delivery is delayed. We are in an active ongoing dialogue with our supply partners and have seen improvement in parts flow over the recent months. The business is fully ready to convert volume the moment parts will flow and we expect it to in landing gear. Component availability is a limiting factor and supply situation in this business is at an earlier stage of resolution than what we see on the apu. Once again our market position is unchanged, customer demand has not changed. What I can tell you is that we are not waiting for this to resolve itself. We have ongoing dialogue with our OEM partners and we have established new processes with them to increase transparency and drive towards resolution. The level of engagement and the steps being taken give us more visibility into the path forward than what we had at the beginning of the year. Lending gear is a smaller portion of the overall business, yet we will continue to press for resolution with the same urgency that we have applied from the beginning. Finally, trading and leasing delivered 29% year over year growth. Strong results for a business with inherent variability from quarter to quarter. The timing of assets transactions don't follow a straight line and and the demand picture in this business continue to be very high. Q4 of 2025 was a record quarter for this business and our ability to complete certain engines exchanges in Q1 was limited by the same pulse availability constraints affecting the Maintenance, Repair, and Overhaul (MRO) operations. The underlying demand picture remains strong and we expect the business to be meaningful contribution to our consolidated results. Switching a little bit to the industry stepping back from the quarter. What we hear from our customers and see in our own order flow continues to point to an encouraging direction. Demand for Maintenance, Repair, and Overhaul (MRO) services remains strong and the need to maintain and extend service life of existing fleet is there. That is the environment TAT operates in and it continues to support our long term opportunity. The supply chain dynamics that affected our first quarter is an industry wide phenomenon. Major OEMs and operators across the aerospace ecosystem have commented publicly on similar pressure in the recent weeks. As we shared in the past in order to overcome it, TAT maintains a meaningful strategic inventory of critical APU parts. The recent shortage which started in Q4 of 25 is in standard commodity level components which are required in all APU final assembly after the overall While we have seen improvement in spark flow over the recent months and while part sources express their confidence in their recovery, the broader environment remains dynamic and we are not in a position to predict the precise pace of normalization. Switching to M and A the M and A remains a key priority for TAT and our progress on this front is meaningful. Over the past nine months we have invested in building a team with direct industry relationships and operational experience required to source and execute transactions in this market. We brought a dedicated corporate development leadership with careers spent in aerospace. We upgraded the board with directors who bring scaled company operating backgrounds and add further connectivity into the broader aerospace ecosystem. We developed our internal systems and procedures to enable us to close M and A opportunities and integrate them into our business. That team is now actively engaged directly with potential acquisition targets, with private equity firms that own assets in our addressable market and with a network of advisors and bankers who bring additional deal flow. As a result, our pipeline is expanded, we are evaluating opportunities which is a notable change from where we were six months ago. Our focus continues to be on active bolt on acquisitions that strategically fit into our platform, expand our addressable market and deepen the value we deliver to customers. As we look ahead towards the balance of 2026, our confidence rests on three key factors. First, demand is the strongest it has been ever for TAT and our record backlog of approximately $580 million reflects sustained engagement across all four of our service line and the pipeline of new business continues to build. Second, our customer relationships remain fully intact and our customers have continued to work with us in partnership throughout this period. Third, PAT itself is a stronger company than it was at the beginning of 2025. Operationally, institutionally and strategically, the investments we have made in the team, our processes and our balance sheet position us to convert demand into growth. As the supply environment normalize, we are moving forward with conviction indication from our suppliers are pointing close to normalization. Based on our visibility and what we are hearing directly from our customer partners, we continue to believe that 2026 will be a year of meaningful growth in both revenue and EBITDA. The supply chain timing dynamics we navigated in Q1 does not change that view. When parts flow, we are ready and the backlog tells you exactly what is waiting on the other side. With that, I will turn the call over to ERUD for more detailed revenue on the financial results. Ehud Benier (Chief Financial Officer) Thank you El Good morning everyone. Good afternoon to those that are on the other side of the ocean. As I walk you through the first quarter financial details, the headline is straightforward. While the supply chain disruption affected the timing of revenue recognition during this period, we extended gross margin year over year, generated positive operating cash flow and ended the quarter with a balance sheet that continues to support both organic growth and our M&A priorities. First quarter revenue was $41.1 million compared to $42.1 million in the first quarter of 2025. As Igal described, the year over year decline reflected industry wide aerospace supply chain timing, not demand. The increase in our WIP inventory and parts is a reflection of the amount of work that could be recognized and at the end of the quarter gross Profit increased by 0.8% year over year to $10 million. Gross margin expanded approximately 80 basis points to 24.4 compared to 23.6 in 1Q25. This margin expansion reflects the operational discipline and structural progress we have made across the businesses including improvement in our cost structure, structure and operating efficiencies and continued focus on cost management across our operations. As we move forward towards the year, we are monitoring expenses very close until revenue will start ramping up again. This is without harming our operational capabilities to ramp production when missing parts arise. Operating income for the quarter was $3 million or 7.3% of revenue compared to $4.2 million or 9.9% of revenue in the first quarter of 2025. While gross profit increased year over year, operating expenses were higher in the period. This increase reflects our planned investment in next generation R and D, the strengthening of our organizational structure and executive teams to pursue strategic ma, strengthening the strategic sales team and the enhancement of our finance infrastructure to support SOX compliance, ongoing regulatory demands and expansions net income was $3.4 million compared to $3.8 million in the first quarter of 2025. Diluted earning per share were $0.26 compared to $0.34 in 1Q25. Net interest income in Q1 of 2026 were $39,000 compared to net expenses of $58,000 in the parallel quarter. This is mainly due to a lower level of debt offset by the impact of the Israeli Shekel against the US Dollar exchange rate which impacted some of our long term loans. Taxes on income were 0.1 million for the three months ended March 31, 2026 compared to 0.6 million for the same period in 2025. The decrease primarily reflects lower taxable income and the impact of jurisdictional mix during the period. I want to remind the audience again that while taxes expenses are booked, these are mainly accounting movements between deferred tax assets and liability. The new bill allowed us to defer tax payment in the United States to the end of 2026 while previously expected to start in Q1 of 26. Also in Israel, we have enough carry forward losses that will take us through the end of 2026, adjusted EBTATDA was $4.9 million, or 11.8% of revenue, compared to 5.7 million, or 13.6% of revenue in the first quarter of 2025. Moving to the Cash Flow Cash flow from operating activities was positive at $1.9 million in the first quarter compared to negative of $5 million in the first quarter of 2025. Turning to the balance sheet, we ended the quarter with $51.2 million in cash and $11.2 million in total debt, resulting in a debt to EBTATDA ratio of 0 point calculated over the last four quarters of EBTATDA shareholders. Equity stood at 180.5 million, resulting in an equity to balance ratio of 77.5%. Our strong financial position give us meaningful flexibility to continue investing in organic growth opportunities and advance the M and A pipeline. To summarize, the volume deferred during the period is contracted and supported by a record backlog gross margin continue to expand, operating cash flow remains positive and our balance sheet is well positioned to support our growth strategy. While supply chain constraints affected the timing of revenue recognition in the quarter, the underlying demand remains intact and we are well positioned to realize this contracted volume as supply conditions normalized. And with that, I will return the call back to igal. Thank you eud. Igal Zamir (President and CEO) Before we move to questions, I would like to leave you with a few clear takeaways. From today, customer demand at TAT is at record level with our backlog growing to approximately $580 million, the majority of which reflects new business wins. The supply chain disruption that affected our quarter is bounded and temporary. The deferred volume is contracted business that we expect to convert when supply conditions will allow and TAT itself is a more capable company than what we were a year ago with the operational, institutional and strategic infrastructure to continue advancing our growth priorities, including maa. I want to thank our employees around the world. Their professionalism, particularly in the quarter and required hand on coordination with our customers and suppliers is what makes our continued progress possible. With that, I will turn over to Matt for questions. Matt Chesler (Investor Relations Representative) Thank you igal. We're now going to open up to the Q and A session from Zoom. There are two ways you can participate. The first is to raise your hand icon to use the raise your hand icon which is at the bottom of the screen. Clicking it will alert us that you would like to ask a live question and we'll place you in queue and call on you. You will remain on mute until that takes place. The second way to participate in Q and A is to use the Q and A widget which allows you to type in your question. We will take questions from there as well. If we run into a time constraint, someone from the IR team will follow up with you if you and your question will be answered as soon as practical. With that, let's pause for a moment to build a queue. The first question is from Ben Cleve at Benchmark. Ben, please go ahead. Ben Cleve (Equity Analyst) All right, thanks for taking my questions. First question around the backlog. It's great to hear really a steadfast belief here that the supply chain problems are not having an impact on your backlog. And I want to lean into this. Clearly your backlog ramps can considerably in the first quarter you had a couple really nice wins and I'm wondering if below those really nice wins, if there was any slippage either in the first quarter or second quarter to date from any of these customers that have been negatively impacted by the parts dynamic or perhaps customers that have had more macro challenges here around the price of jet fuel, any low cost commercial providers, anything like that. So has there been any slippage out of backlog here again either in the first quarter or second quarter to date? Igal Zamir (President and CEO) So let me address I try to address the question in several ways. First of all, maybe just to expand on what we just covered in the opening remarks. When you think when you look I mentioned earlier that we finished the quarter with 15 and a half million dollar of Auxiliary Power Unit (APU) s and landing gear in open work and we believe that material, the material portion of it should have been released and recognized during the quarter is the part for the window. And also if you look so that's kind of a reflection of the you can estimate what could have been the quarter we entering the quarter and during the quarter we were expecting Q1 to be to continue the trajectory of the growth that we had in the last few years. So from a demand perspective we were expecting and hoping for a very strong quarter. Second, the second way to look at second way to look at the and where we were at the end of the quarter is looking at the balance sheet and I already mentioned something about it. If you look at the inventory substantial inventory increase that we had during Q1, a big portion of this inventory increase that you see on the balance sheet relates to the open work order. The value of the work that was done into the open work order is another indicator for how much could have been added as a general saying today. So the third question that I believe that you asked as a general saying the work is there, the demand Is there and we see the buildup of intake we don't have so far. We don't see any indications. You know, there are always exceptions here and there, but as a general saying, we don't hear any, any impact on intake due to the environment. We actually see continuing strong momentum on intake. Ben Cleve (Equity Analyst) Okay, that's very helpful, thank you. And then one other one for me and then I'll get back in queue. Is around your expectations, not necessarily for the timing of the parts, your access to the parts, but kind of the, the progression of getting from where you are today to when you'll be fully, you will have full inventory. Are you expecting kind of a one time event where these parts unlocks, especially on the APU side, all come in at once or do you think this is going to be kind of a trickling over several months or several quarters for you to get to the full inventory position that you need? Igal Zamir (President and CEO) So. Okay, again I will split the answer into two segments. First of all, let's start with APU, which is the vast majority of the opportunity that we have ahead of us in terms of catch up. So first of all we did a few things while we are working very, very actively with our OEM partners to resolve the past situation. We are also extensive efforts to bring alternative solutions and to make sure that we have the part not just from the OEM agreements that we have and it's contributing to the ramp up. The OEM partners themselves are reporting on a substantial improvement on their side, but in the same time they have huge backlog not just for TAT. We are only one of many, many customers that they have and the problems affect everybody. And therefore I believe that back to normal will take a couple of months. I don't expect any one-time event where all of a sudden next week or whatever, we see all the parts in one day. It will be a process. They are optimistic that the problem, the root cause of the problem is behind them and that they are on recovery trajectory. We do see increase in a substantial increase in the last few weeks in delivery, but it will take few months. Ben Cleve (Equity Analyst) Okay, very good. That makes sense. Well, I appreciate you taking my questions. Best of luck here navigating this and I'll get back in queue. Igal Zamir (President and CEO) Thank you. Thank you. Thanks Ben. Matt Chesler (Investor Relations Representative) The next question is going to be from Jonathan Sigman from Sifel. Jonathan, please go ahead. Good morning. Jonathan Sigman Thanks for taking my question. Maybe just to talk a little bit more about the parts shortage. Is there any risk that given these OEM suppliers who are having some problems delivering these Parts are not are prioritizing their own internal use of these parts and you as a third party partner are lower priority. Just maybe if you discuss that concern, I appreciate it. I would say again, I need to split the answer on the apu. There is zero risk. There is no risk. And as we stated in the comments at the beginning, when it comes to the apu, you have the main engine components, all the, Igal Zamir (President and CEO) how do you call it, the time core of the time engine component, the time impeller, the time big part and whatever. We have plenty of the timem in stock. We established a meaningful strategic inventory a year ago. So when an engine come and we need to do the time work, we have all the time parts in house. This is why we have so much work order that are very close to completion. Well, the time overhaul was done, but the time challenge that we have today is on the time all kinds of commodity level parts without going too many details that you need in order to reassemble the time engine after the time overhaul was done. There is no conflict between us and the time time of year-end between us and the time OEM production. And so I don't see any risk the timere. On the time landing gear, it's a different story because the time landing gear, the time OEM itself that is producing the time main landing gear parts is supplying to us and also supplying to their own shop. So in theory there can be a conflict. We are working very actively with them and trying to verify that we are going to make sure that the allocation is done according to the customer needs and not just based on prioritizing the OEM versus the partners. So there is more risk there, but it's a much, much smaller portion of the problem. Thank you. And your freight customers, sometimes they can be the most sensitive to changing macro conditions, any color on what they may be saying or thinking at the current time. Thank you very much. I would say just as a Jonathan Sigman at least one of our largest customers weight customer is suffering from the same OEM from the same part on another on their needs unrelated to what we do for them. And so we are, you know, it's a known problem in the industry, among the industry players and everybody is affected. So not only that, we get good collaboration and actually our customers are part of the solution in the sense that they are helping us to put pressure to resolve the problem. Thank you. But we also, and also we work very closely with our customers to make sure that we take care of the needs that more customers will get stuck without spare units and very openly and very engaging with our customers. Igal Zamir (President and CEO) So it looks like it's under we are managing it properly and we are on the right direction in terms of the trajectory. Jonathan Sigman Thank you. Igal Zamir (President and CEO) Thank you. Matt Chesler (Investor Relations Representative) Next on to Josh Sullivan from Jones Trading, who has submitted a question. Josh is asking whether the supply chain disruptions open up any conversation around vertical integration or mergers and acquisitions. Josh Sullivan I think it's a potential here and we are. Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.