TAT Technologies Q3 2025 Earnings Call Transcript

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Provided by Quartr
November 13, 2025

Key Takeaways

  • Positive Sentiment: TAT delivered strong Q3 results with $46.2M revenue (+14% YoY), gross profit up 37% and a record adjusted EBITDA margin of 14.6%, indicating meaningful operating leverage.
  • Positive Sentiment: Cash generation and the balance sheet strengthened — $47.1M cash, $12.1M total debt (≈0.5x debt/EBITDA) and ~51% EBITDA cash conversion YTD, giving flexibility to fund growth.
  • Positive Sentiment: Backlog and LTA value remain robust at $520M (up ~$100M YTD), which management cites as validation of durable customer demand and a large pipeline of opportunities.
  • Positive Sentiment: Management is sharpening an inorganic growth strategy — adding corporate development leaders and three new independent directors — to pursue targeted, accretive bolt‑on M&A and expand addressable markets.
  • Negative Sentiment: Company warns of persistent quarter‑to‑quarter lumpiness driven by discretionary MRO timing, and ongoing supply‑chain long lead times and variability (notably in landing gear and some APU vendors) that can cause short‑term volatility.
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Earnings Conference Call
TAT Technologies Q3 2025
00:00 / 00:00

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Matt Chesler
Head of Investor Relations at FNK IR

Third quarter 2025 earnings conference call. Please note that today's conference may be recorded. My name is Matt Chesler from FNK IR, a U.S.-based Investor Relations firm supporting Eran Yunger, TAT's internal Head of Investor Relations. Hosting today's call is Igal Zamir, TAT's President and CEO, and Ehud Ben-Yair, TAT's CFO. Before getting started, we would like to draw your attention to the fact that certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of the federal securities laws. These forward-looking statements are based on management's current expectations and are not guarantees of future performance. Actual results could differ materially from those expressed in or implied by these forward-looking statements.

Matt Chesler
Head of Investor Relations at FNK IR

The forward-looking statements are made as of the date of this call and, except as required by law, TAT assumes no obligation to update or revise them. Investors are cautioned not to place undue reliance on these forward-looking statements. For a more detailed discussion of how these and other risks and uncertainties could cause TAT's actual results to differ materially from those indicated in these forward-looking statements, please see our annual report on Form 20F and other filings we make with the SEC. The financial measures discussed today include non-GAAP measures. We believe investors focus on non-GAAP financial measures in comparing results between periods and among our peer companies that publish similar non-GAAP financial measures. Please see this morning's Form 6K, our earnings release, and the investors' section of our website for a reconciliation of non-GAAP financial measures to GAAP measures.

Matt Chesler
Head of Investor Relations at FNK IR

Non-GAAP financial information should not be considered in isolation from, as a substitute for, or superior to GAAP financial information, but is included because management believes it provides meaningful information about the financial performance of our business and is useful to investors for informational and comparative purposes. The non-GAAP financial measures that we use have limitations and may differ from those used by other companies. Now, with all that, I'd like to turn the call over to Igal.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Good morning, everyone, and thank you for joining us for the TAT Technologies third quarter earnings call. I appreciate your interest and continued support as we review our performance and discuss our strategic direction moving forward. TAT continues to deliver organic growth that exceeds the broader MRO, driven by intentional diversification and strategic positioning serving in-demand and often underserved areas of the commercial aviation industry. We delivered another solid quarter in Q3, highlighted by double-digit revenue growth, record EBITDA margin, and increased cash generation. These results reflect disciplined execution, strong demand across our core business lines, and, importantly, the operating leverage we have worked hard to build into our business model. Incremental revenues are now flowing through the bottom line in a more meaningful way, representing a significant accomplishment and foundation upon which we can continue to build.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Our consistent growth and expanding profitability demonstrate that our model is performing as intended: efficient, diversified, and designed to capture value across multiple segments of the aviation market. The broader aviation market continues to benefit from a constructive operating environment. Fleet utilization remains high, aircraft retirements are occurring at a lower pace than past cycles, and OEM delivery constraints are extending the service life of existing aircraft. Together, these dynamics are driving sustained demand of maintenance, repairs, and overall activities, as well as components, parts, distribution, and leasing. This backdrop reinforces the importance of our diversified MRO platform and the flexibility that we provide to both commercial and cargo operators. As I stated in previous calls, normal quarterly fluctuations are expected in the MRO industry, especially since the substantial portion of our MRO activity involves discretionary maintenance.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Airlines tend to shift work between months and quarters based on budget cycles, expected flight loads, and other operational considerations. External factors occasionally influence intake timing as well, particularly in defense-related work, though these factors typically affect timing rather than underlying demand. For these reasons, we believe in a multi-quarter, year-over-year view as best captures the strength and the momentum of our business. We believe that this perspective, supported by the year-to-date and trailing 12-month trend, provides a clearer picture of the consistency of our growth, margin, expansion, and cash generation. Over the past several years, we've added capabilities, strengthened operations, and diversified revenue streams. These strategic initiatives have positioned TAT to sustain performance and long-term value creation. In particular, we have expanded into several underserved MRO markets, adding in-demand capabilities. Looking ahead, potential inorganic growth through the acquisitions of accretive bolt-on capabilities will further expand this proven foundation.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

With an increasingly stronger balance sheet and a leadership bench in place, we are sharpening our focus on identifying strategic opportunities to accelerate our existing growth strategy. We have recently added experienced corporate development executives to help us evaluate strategic M&A activities, and we are continuing to broaden our governance structure. At last week's annual and special general meeting, shareholders elected three new independent directors to the company: Sagit Manor, Eytan Oppenheim, and Amir Arel, each bringing deep financial and corporate development experience from leading global companies. These appointments enhance our governance and leadership capabilities as we position TAT for its next phase of growth. With this context, I'll turn it over to our CFO, Ehud Ben-Yair, to talk through, to take us through the financial results in more details.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

Thank you, Igal, and good morning, everyone. I will review the key financial results, balance sheet highlights, and cash flow performance for the third quarter and for the first nine months of 2025. Third quarter revenue increased by 14% to $46.2 million, up from $40.5 million in the same period last year. For the first nine months of the year, revenue was up more than 18%. This growth was fueled by strong demand across our core business lines, along with market share gains. Even while delivering another quarter of double-digit revenue growth, we essentially maintain our backlog and LTA value at $520 million. This robust backlog validates our belief in durable customer demand and reinforces our business strategy of expanding our addressable market by adding new capabilities.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

From the beginning of the year, the backlog grew by close to $100 million, representing a huge increase compared to the increase in the revenue, which is representing a strong signal to our capabilities to further grow our revenue line. Gross profit increased by 37%, and our gross margin expanded by 410 basis points to 25.1% compared to 21% in the third quarter last year. This improvement reflects our ongoing effort to optimize cost structure, improve operational efficiencies, and enhance product mix. Operating income reached $5.2 million, up by 52.6% year-over-year, demonstrating the leverage in our model as volume growth translated to profitability. Net income for the quarter was $4.8 million compared to $2.9 million a year ago. Taxes on income for the quarter were $800,000 versus a minimal amount in the same period last year. The new U.S. Tax legislation enacted under the One Big Beautiful Bill Act had only a modest effect on our result.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

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. 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, while prior to the new act, we were supposed to start paying taxes by the end of this year, by the end of 2025. Net financial expenses are close to zero this quarter, mainly due to favorable exchange rate differences between the Israeli shekel and the U.S. dollar, which were offset by the ongoing interest on our long-term loans.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

Finally, adjusted EBITDA increased by 34% to $6.8 million, translating to an adjusted EBITDA margin of 14.6%, a record adjusted EBITDA 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 in the quarter was $7.5 million, driven by improved profitability and working capital efficiency and disciplined cost management. For the first nine months, cash flow from operation was $9.5 million, representing an EBITDA cash conversion of 51%. Turning into the balance sheet, we ended the quarter with $47.1 million in cash and $12.1 million in total debt, resulting in a low debt-to-EBITDA ratio of 0.5x. Shareholders' equity stood at $170.7 million, supporting a strong equity-to-asset ratio of 76%.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

I'm going now to discuss a little bit about the results 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 plan. Heat exchanger revenue increased by 6% between Q3 2025 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 MRO growth was a little bit slow in the last two quarters but expected to increase in the coming following quarters.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

In the landing gear area, revenue 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 started, and we are well-positioned with contracts that need to be served in the next three years. Last, trading and leasing, after a particularly strong second quarter, were down both sequentially and on a year-over-year basis, reflecting normal quarterly volatility, as we explained in the previous earnings call. On a year-to-date basis, trading and leasing revenue is up by 17%. In summary, TAT delivered another period of solid growth and improving profitability, supported by disciplined expense management and strong cash conversion. Our balance sheet remains a strategic asset, providing flexibility to invest in both organic and inorganic growth opportunity. By this, I'm returning the call back to our CEO, Mr. Zamir.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Thank you, Ehud. The broader aviation market continues to experience variability, but our diversification helps offset these dynamics. While we are not immune to our agility, we have built the ability to adjust capabilities and capacity and resources in real time, ensuring that we meet customer needs and sustain operational efficiency even in a changing environment. That adaptability remains one of our competitive advantages. We plan to leverage our strong balance sheet to pursue acquisitions that expand our addressable market, deepen customer relationships, and make natural adjustments to our platforms. Over the past two years, we significantly increased our long-term backlog. I expect this overall trend to continue as customers seek nimble partners to support their maintenance needs. RFP activity has its own cadence, with quarter-to-quarter volatility, much like our intake volume.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

The overall trend is encouraging, and I continue to believe that we are well-positioned to capture more market share. In summary, TAT continues to deliver performance that exceeds the industry, and our operational discipline is driving greater earning power. Supply chain dynamics continue to require active management, and we have made significant progress in relation to our inventory levels, helping to increase our cash generation capabilities. I remain optimistic about the years ahead. Before opening the call for questions, I'd like to thank our employees for their professionalism and hard work. Their commitment continues to set the standard for the industry and underpins everything we've achieved. I also would like to welcome our new independent directors. Their additions reflect our broader efforts to strengthen and diversify our board as we prepare for the next phase of our growth.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Over time, we expect to further expand the board with additional U.S.-based and industry-oriented expertise to complement our strategy. I would now like to open the call for questions. Matt?

Operator

Matt, you're on mute.

Matt Chesler
Head of Investor Relations at FNK IR

Thank you. Thank you for telling me about that. And thank you, Igal, for those remarks. As you know, we're now going to open up to 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. The first way to do this is to raise your hand by clicking that icon. It's at the bottom of your screen. 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. 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.

Matt Chesler
Head of Investor Relations at FNK IR

I know a number of you have already been doing so, and that'll allow you to type in a text and text a question. We'll take questions from there as well, but just note, if we run into a time constraint, someone from the IR team will get back to you if your question is not asked on today's call. With that, I'd now like to pause a moment to build the queue. Please go ahead and raise your hands. Jonathan Sigmund, would you like to raise your hand, or would you like me to read your question? I'll go ahead and read Jonathan Sigmund's question from Stifel. Congrats on the strong quarter, strong results, and strong cash. Last quarter, you explained how TAT T was able to make use of the tariff-driven slowdown in MRO intake activity and switched to repair APU.

Matt Chesler
Head of Investor Relations at FNK IR

Can you talk about how 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?

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

I think that I would like to answer this question in a more broader perspective. As I stated every quarter, I remember starting to make the same statements since Q4 of last year and being very consistent about it. I do not know that we can look at TAT on the MRO portion of TAT business on a quarter-to-quarter basis. There are many, many variables, and things are changing based on the factors that I stated earlier in my opening remarks. I do think that we need to look at it year-over-year. The landing gear increase was expected. We stated it in previous calls. We are getting into a new cycle of landing gear overall, with expectation to substantial growth in revenue going into the coming few years. Nothing is new here. We saw it coming, and it came.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

There may still be fluctuations between quarters, but the overall trend is very strong. Going back to the flexibility and how to adjust, I think that I truly think that this is our biggest advantage as a player that is not a huge player like many of our competitors. It is our ability to shift focus and to shift employees and manpower from one area to the other as needed. There is fluctuation, and the question is, what do you do when the intake is surprising you and comparing to the plan, which happens quite often? We became pretty good in diverting workforce and making sure that we adjust fast and that we do not just accept things as they are. Last quarter, we have been asked about the APUs and what happened. For those of you who attended, how come that last quarter was strong?

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

I said the same thing. I have no concerns whatsoever about the APU intake, and we see it this quarter with a substantial increase in APU. I think that when we look year-over-year and the growth in all the segments, it's very promising, it's encouraging, and we see a continuing trend moving forward, especially when we look at the backlog.

Matt Chesler
Head of Investor Relations at FNK IR

There's another submitted question. This one is from Ben Cleve with Benchmark. Congratulations on another outstanding quarter. You mentioned your increased 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 opportunities and discuss why you think they've been underserved historically?

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

I think that the industry in overall, especially of the last few years, is going through a post-COVID crisis and part shortages and big players that are struggling and ramping up. As an outcome, it represents big opportunities for fast companies, fast-moving companies, I would say, and more flexible that can get ready and demonstrate that they have the ability to adjust to the situation and provide great service. One of the things that we are really proud of as a company in the last two years is the 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 inventory to make sure that we will have the right parts on time. We are performing well as an outcome and the new capabilities that we added on the APU side.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

When the market is struggling and when airlines around the world are suffering from lack of capacity and you have the capacity and you're ready and you can demonstrate performance, you gain momentum. When it comes to the acquisition, just to the M&A activity, we are not just looking, just to be clear, and I would maybe elaborate on this for two minutes. We are looking in several verticals and not necessarily just on the MRO, but also on the OEM side. When it comes to MRO, though, we are looking to add value to our customers. I think that what we hear from airlines around the world is that one of the challenges that they are facing is with the relatively small supply chain management team. They need to manage hundreds and hundreds of vendors around the world.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Everybody is looking to consolidate work and to work with a larger vendor that can support them across more product lines. Our M&A strategy, when it comes to MRO, will be to look for companies that can add high-quality, meaningful MRO services that we can add to our portfolio and be more meaningful to our customers. Kind of a general answer to the question. Having said this, as I said before, we are also looking for acquisitions on the OEM side to expand our thermal system capabilities, expand into new segments of thermal systems where we are not active today and become a more meaningful player in the thermal system world.

Matt Chesler
Head of Investor Relations at FNK IR

Thank you. I'm going to summarize a question around backlog that I received from a couple of investors. Thank you, Tal, and thank you, Yuval, for submitting them. Essentially, it's that the backlog declined by a few million sequentially from last quarter. Can you comment on that?

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Yeah, I don't want to—basically, it's a non-issue. I think that if you look here today, we are way above where we started the year. We showed a huge growth. We need to remember that we publish wins and add them to the backlog and LTA value only when we sign them. There are several factors. We cannot control when the airlines are opening the RFPs. We cannot control when they determine who is the winning bidder. In many cases, even after we win, we cannot control when our legal team and the airline legal team will eventually sign the contract so we can publish. As I stated before, we are enjoying a very strong—we are enjoying a very strong opportunity pipeline, larger than ever in the past.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

We will keep on announcing and adding to the LTA new wins as we get them. We remain very optimistic about it. That is the only thing that I can say right now. In the last three months, we did not sign any win yet. We saw a tiny reduction, but it is a non-issue.

Matt Chesler
Head of Investor Relations at FNK IR

Next, there is a question from Chen and a question from Authic that I think relates to your exposure to potential external disruptions. For example, how are your operations affected by the federal government shutdown that apparently just ended? Is the grounding of some of the UPS and FedEx aircraft following the incident in Kentucky expected to affect any loads and schedules at your service centers?

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

I think that everything can have a meaning. Every one of these interruptions or disruptions can cause some short-term hiccups. When you look at the overall trend, none of them represents, obviously, unless something turns into a macro global issue or challenge, none of them should have any sustained impact on our growth patterns for the future. I do not see right now any--there is no drama here or any big impact with the exception of short hiccups here and there. Again, that we can easily--in reality, we are overcoming them because we have different product lines coming from different customers and a very large customer base and OEM versus MRO and other factors. So far, we have not seen any major impact or concern that should be noted here.

Matt Chesler
Head of Investor Relations at FNK IR

Okay. I have a follow-up question from Ben Cleve at Benchmark that relates to the landing gear business, which is scaling and seeing some lumpiness. Do you expect that the lumpiness is going to decrease, or perhaps even get more pronounced?

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

I'm expecting it to stay as it is. Again, the volatility between the quarters, but the overall trend is very strong.

Matt Chesler
Head of Investor Relations at FNK IR

Okay.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Maybe I can add to it. On the landing gear side, we are trying to be more proactive with our customers. 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. Looking at next year, on paper, it looks great and very little volatility. From my 10 years of experience at TAT, the plan is great until the year starts. There are always changes and unexpected events. It can be that, I do not know, a catering truck hit a gear in another aircraft, and now they have to change the—I am giving it as one example. There are always changes and surprises.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

I'm expecting volatility, but the overall trend and looking at where we are in the plan for next year, we expect to continue and to grow very nicely.

Matt Chesler
Head of Investor Relations at FNK IR

The next question is from Michael Ciarmoli from Truist. Michael, please go ahead.

Operator

Unmute, please.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Hi, Michael. Can you speak?

Matt Chesler
Head of Investor Relations at FNK IR

Operator, can you assist in activating Michael?

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Hi, Michael. I think that we can hear you.

Michael Ciarmoli
Michael Ciarmoli
Managing Director, Aerospace, and Defense Equity Research Analyst at Truist

Okay, perfect. Morning, guys. Nice results. Just on the margins, really nice margin performance. I mean, it looks like at the operating level, incremental is about 31%. I think you've kind of talked about the EBITDA margins, 15%. You're basically almost there. 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 do you think you can get some pricing to be additive as well?

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Yeah. For those of you listening to the calls in the last two, two and a half, three years, I've been pretty consistent about saying that I believe that the best-in-class company in our line of business should be at the 15% EBITDA and above. Yes, Michael, as you stated, we are getting there mainly due to operational efficiencies, initiatives that we had, and things that we are doing. I'm happy to say that now that we are almost there, we still have a lot of opportunities and a lot of initiatives to continue and improve the margin moving forward, even before increasing revenue or before increasing pricing. It is a very high priority for us on our plans for next year to continue and improve our efficiency, to remove waste, and to reduce purchasing costs and to become a more effective company.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Some of it may be used to be more competitive in RFPs, and some of it will result in further increasing the EBITDA. Regarding pricing, we try to be very careful about not using it just as a tool because we are in a very competitive landscape. Obviously, we have price escalation built into our contract, but they are tied into predetermined indexes like labor and materials. Prices traditionally, if I'm looking years back, they were increased year-over-year, but that's not something that we are using as a tool for margin.

Michael Ciarmoli
Michael Ciarmoli
Managing Director, Aerospace, and Defense Equity Research Analyst at Truist

Got it. Okay, helpful. If I may, you guys break out your percent of revenues by MRO and OEM. It looks like if I look at the OE percentage, it was up year-over-year, maybe close to 3%. I just wanted to know your products on the thermal side where you've got 737 exposure. What are you seeing there now that Boeing has gotten the FAA approval to rate break higher? Is there any destocking? Do you see any inventory, or do you think that side of your business starts to grow as we see the volumes increase on the MAX?

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Yeah, Michael, I think that specifically if you talk about the MAX and our effect, there is a minimal impact, but not something that will have any dramatic impact on the future business one way or the other. I can say that if you look at overall aircraft production rate in our OEM business, obviously, our business is growing in a linear line together with the increase in production rates. Again, without going into any specific platform, if you look across the board, if you look at the book of orders and planned capacity for Boeing and Embraer, Textron, and others, we are enjoying it. Hopefully, we will continue to enjoy it in the years to come because we see an increase in POs.

Michael Ciarmoli
Michael Ciarmoli
Managing Director, Aerospace, and Defense Equity Research Analyst at Truist

Got it. Got it. Helpful. I'll jump back in the queue, guys. Thanks.

Matt Chesler
Head of Investor Relations at FNK IR

Thank you, Michael. The next question is a two-parter from Richard Kay, who said, "You generate strong cash flow. Again, is that sustainable? And how would you characterize your balance sheet strength today?

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

I'll answer the first question about the cash flow. If you may want to answer about the balance sheet, I think we spoke about it last quarter. We were in a very fast growth in a very unstable market with gigantic supply chain issues and other challenges with customers. We wanted to make sure that we would be ready to the customers. We made strategic decisions to dramatically increase inventories and a few other things to support our customers as they were struggling. Last quarter, I mentioned that we are in a very healthy situation today that we do not believe that we need to increase, and we can turn more of the EBITDA into cash. Our collection is better. We do not need to continue increasing inventories.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

As long as we do not go into a new product line that really requires a new line of spare inventories, we are now at a position that we can start moving the inventory faster and increase inventory turns rather than overall inventory increases. From a CapEx perspective, we made substantial investments over the last four years in getting ready for the growth facilities, equipment, and everything else that was required. I think that we are moving more, we are scaling back because we feel that we are ready with what we need for the next year or two. The substantial investments are kind of behind us. There is always going to be a certain level of investment, mainly focused on two aspects: the maintenance, let us call it maintenance CapEx, and the second type is CapEx associated with continuing to improve our efficiency.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

All in all, we see a substantial reduction in CapEx needs, and this is also going to impact the cash. Again, cash fluctuates mainly based on collections versus payments from quarter to quarter, but we do expect to continue and enjoy very strong cash flow. I wonder if you would like to address the balance sheet.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

Yeah, thank you. I'm expecting the balance sheet to continue or the equity ratio to balance sheet to continue to stay very high and very strong in the area of 70%-75% in the coming quarters, giving the profitability forecast and the working capital needs that we're seeing.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

I must say that, however, as we indicated in the past, that in case we execute an acquisition deal, part of financing of this deal will come from debt leverage, and this will change a little bit the ratios in the balance sheet.

Matt Chesler
Head of Investor Relations at FNK IR

We have a follow-up question from Michael Ciarmoli from Truist. Michael, please unmute your line and proceed with your question.

Michael Ciarmoli
Michael Ciarmoli
Managing Director, Aerospace, and Defense Equity Research Analyst at Truist

Hey, can you hear me, guys?

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Yes.

Matt Chesler
Head of Investor Relations at FNK IR

Yes.

Michael Ciarmoli
Michael Ciarmoli
Managing Director, Aerospace, and Defense Equity Research Analyst at Truist

Okay, perfect. Just to follow up, I think last quarter, I mean, you had a really good landing gear performance, assuming that the internal supply chain challenges and inefficiencies you've had are kind of totally resolved. And then just one more on the APUs. Wanted to know what you're seeing on penetrating the market for the 131. Thanks.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

You're asking about the 131 specifically? We have several opportunities that we are trying to bid on. We haven't won any meaningful in the last so far, I would say we haven't won any meaningful RFP. The opportunities are out there. We still have some learning curve. The demand is there. The RFPs are coming. I believe that with time, we will start showing substantial growth there. We are basically at the beginnings, if you will, as we stated in the last few quarters.

Michael Ciarmoli
Michael Ciarmoli
Managing Director, Aerospace, and Defense Equity Research Analyst at Truist

Perfect. Thanks, guys. Appreciate it.

Matt Chesler
Head of Investor Relations at FNK IR

We have an additional submitted question, which is asking about the supply chain and whether conditions and capacity utilization are improving or how are they trending.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

I would say it depends on the product lines. I believe that on the thermal components supply chain, where we purchase basically raw materials, I think supply chain pretty much stabilized to where it used to be pre-COVID. No major stories there. APUs and landing gear still, APUs is more reliable, but still very long lead times from the vendors. On the landing gear, it is still unstable, both on the lead time and reliability of the vendors. Different phases. All in all, I can say across all product lines, the trend is very positive, but we are not there on the APUs and landing gear. The industry is not where it needs to be.

Matt Chesler
Head of Investor Relations at FNK IR

Here's a question from Ian Adam Plotnik asking about gross margins. I'm looking at the question. Can you talk about sort of the mix of gross margins across your businesses? He's observing that some of the gross margins, excluding leasing and trading, did increase substantially over the quarter. Just wondering what that mix looks like across the businesses.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Ehud you would like to address it?

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

Guys, do you hear me?

Matt Chesler
Head of Investor Relations at FNK IR

Yes.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

I'm sorry, my line is not so good. Could you please repeat the question, Matt?

Matt Chesler
Head of Investor Relations at FNK IR

Yeah, the question would be just maybe a comment on how gross margins vary across the various business lines. Because there was an observation about the increase in gross margins this quarter, excluding leasing and trading.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

Yes, obviously what you saw, and again, I do not want to make long-term points on one quarter. We need to look at the trend of the couple of quarters in order to determine our mind what is the right gross margin because product mix is playing and the level of each revenue within the segment is also determining the gross profit due to our operational leverage. In general, I would say that in this segment, we see a trend of improving in the gross margin. Again, looking for the long term, we expect the margin in this segment to go up a little bit. It is mainly due to all of the things that were mentioned during the pitch by Igal and me. We have many plans of improving operational efficiencies. We are also leveraging our employees' utilization.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

Also, again, having more work, more revenue on the same labor is improving by itself the gross margin. You know, if you look at, maybe just to add a few things, first of all, just to add to what I would say, looking at gross margin from quarter to quarter is almost impossible because even within the same product line, within everything, if you compare apples to apples between the quarters, you have different customers with different margins. We need to remember that on the MRO side, there are lots of variations. On the OEM, once you have a deal and it is closed and you have the supply and you know the cost, it is pretty much stable gross margin. You know what to expect.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

When you receive an engine for an overhaul with hundreds of different parts that need to be inspected, there is a huge variance between one engine to the other. Sometimes you get the engine and it's very easy and you replace a few parts. Sometimes you get what we call a very heavy shop visit with many parts. You need to remember that in many cases our pricing to our customers is fixed pricing. Basically, it's built on a statistical model over time.

Ehud Ben-Yair
Ehud Ben-Yair
CFO at TAT Technologies

Sometimes you get all it takes is two or three engines with very heavy replacement, and the margin this quarter is going to look less favorable. The following quarter, you get some light engines and everything is going to look great. It's very risky to, or not the right approach in my mind, I would say, to compare quarter to quarter, but rather to look at the long-term trend.

Matt Chesler
Head of Investor Relations at FNK IR

Thank you both. The final question before we turn it back to you, Igal, for concluding your remarks is from Robbie from Essex Fells Capital asking, how should investors think about Q4 and 2026?

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

As I stated in the beginning, I'm going to talk only about 2026. We are very optimistic. The trend is strong. We have a very strong backlog, as you see in the numbers. We have a very large pipeline of opportunities in different stages, a significant amount of potential business that we believe that we are going to, some of it at least, a substantial portion of it we can secure. The market trend is continuing to be strong. Both OEM demand is growing and the MRO needs are there. All in all, all the indicators are very positive, and we are continuing to increase our internal efficiency. We remain very optimistic about the ability to continue and to grow the business next year. I think this is the best answer that I can give right now.

Matt Chesler
Head of Investor Relations at FNK IR

Igal, now turning to you for concluding remarks.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Just as final remarks, first of all, thank you for joining us today. The financial performance in the quarter further validates our business model and strategy. We are currently participating in multiple RFPs, as I stated two minutes ago. The growth opportunities we are pursuing give us the confidence in long-term growth trajectory for TAT. On top of this, we believe that there are opportunities to accelerate our growth and increase our scale through targeted and strategic M&A activities. I continue to think we are better positioned than many others in the industry for long-term growth. I'm increasingly confident in our future. With that, I just want to thank everybody again for joining us today. Happy to answer further questions via IR.

Matt Chesler
Head of Investor Relations at FNK IR

Thank you, everyone, for joining us today. You may now disconnect your lines.

Igal Zamir
Igal Zamir
President and CEO at TAT Technologies

Thank you, Bye.

Executives
    • Ehud Ben-Yair
      Ehud Ben-Yair
      CFO
    • Igal Zamir
      Igal Zamir
      President and CEO
Analysts
    • Michael Ciarmoli
      Managing Director, Aerospace, and Defense Equity Research Analyst at Truist
    • Matt Chesler
      Head of Investor Relations at FNK IR
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