What TAT Technologies (TATT) Said on Its Q3 Earnings Call

Key Points

• TAT Technologies delivered record Q3 results: Revenue rose 20.2% year over year to $55.6 million, while adjusted EBITDA jumped 60.9% to a record $10.9 million as gross and operating margins expanded.
• Growth was led by the APU and distribution businesses. APU revenue increased 34.4%, while trading, leasing and distribution revenue surged 85.5%; together with heat exchangers, these operations now represent nearly 85% of total business.
• Management remains optimistic despite a backlog reduction. Backlog fell to $577 million after removing $34 million in landing gear contracts affected by component shortages, but the company cited strong demand, healthy long-term agreements, substantial net cash and momentum continuing into 2027.

TAT Technologies NASDAQ: TATT reported record third-quarter 2026 revenue and adjusted EBITDA, as demand in its auxiliary power unit, or APU, business, heat exchangers and trading, leasing and distribution operations supported growth and margin expansion.

Revenue increased 20.2% year over year to $55.6 million in the quarter, while gross profit rose 48.2% to $17.2 million. Gross margin reached 30.9%, compared with lower levels a year earlier, as the company benefited from a more favorable product mix, operational efficiency initiatives and contributions from distribution activities.

“Q3 was an outstanding quarter for TAT,” President and CEO Igal Zamir said. “Performance was broad-based, and profitability grew faster than revenue.”

Profitability Improves Alongside Revenue Growth

Operating income was $9 million, or 16.3% of revenue, compared with $5.3 million, or 11.4% of revenue, in the third quarter of 2025. Net income increased to $7.7 million from $4.8 million, and diluted earnings per share rose to $0.58 from $0.37.

Adjusted EBITDA increased 60.9% to a record $10.9 million, representing 19.6% of revenue, versus $6.8 million, or 14.6% of revenue, in the prior-year quarter.

For the first nine months of 2026, revenue increased 13.8% to $149.6 million. Operating income rose 27.3% to $17.6 million, while adjusted EBITDA increased 47% to $27.4 million, or 18.3% of revenue.

CFO Ehud Ben-Yair said the quarterly margin gains reflected a capacity shift away from landing gear and toward higher-margin APU work, healthy trading activity, the addition of distribution revenue and the full effect of operational improvements initiated earlier in the year.

Ben-Yair said the company views its year-to-date gross margin of 27.1% as “a reasonable margin profile” for its near-term business. During the question-and-answer session, he added that the average profitability of the past three quarters is a representative indicator of profitability going forward.

APU Business Leads Segment Growth

APU revenue increased 34.4% in the third quarter and 26.8% in the first nine months of the year. Zamir attributed the growth to new contracts won since the beginning of the year, an improving supply chain and greater internal capacity and efficiency.

He said the company’s APU maintenance demand is supported by aircraft utilization, noting that APUs are generally removed for maintenance when repairs are needed rather than at purely discretionary intervals.

Heat exchanger revenue rose 7.3% in the quarter and 5.2% through the first nine months. Ben-Yair said the business, which serves original equipment manufacturer and maintenance, repair and overhaul customers, remains a steady long-term foundation for the company.

Trading, leasing and distribution revenue climbed 85.5% in the quarter and 42.9% year to date, reflecting several transactions and contributions from the recently added distribution business. Zamir cautioned that quarterly results in the segment can fluctuate because larger transactions depend on asset availability, repair timing and deal closings.

The company said its APU, heat exchanger, and trading, leasing and distribution operations now account for nearly 85% of total business. Landing gear accounted for less than 4% of quarterly revenue and continues to face parts availability and supply-chain issues.

Backlog Declines on Landing Gear Contract Removal

TAT ended the quarter with backlog of $577 million, down from $615 million at the end of the second quarter. The decline reflected the removal of $34 million in landing gear contracts because of shortages of components needed to perform the work. Excluding those contracts, backlog was essentially unchanged despite record quarterly revenue, according to management.

Zamir said the company had taken a conservative approach by removing work from backlog that it is currently struggling to fulfill. He said long-term agreements represent approximately 60% to 65% of TAT’s revenue, while 35% to 40% comes from non-contractual, shorter-term customer needs. Management said it has not seen a change in customer consumption expectations under its long-term agreements.

Honeywell Relationship, Inventory Investment Support Expansion

TAT highlighted an expanded relationship with Honeywell Aerospace, including a distribution agreement announced in early in the third quarter and an MRO authorization that has been extended through 2036. Zamir said the distribution agreement is not yet meaningful to revenue but is meaningful to profitability and should continue to support margin improvement.

Cash flow from operating activities was $3.8 million during the quarter, despite a $10.6 million investment in inventory. Most of that inventory was intended to support the new distribution channel, Ben-Yair said. Zamir said the company needs broader inventory availability to serve airline and MRO customers, particularly in an environment of extended parts lead times.

The company ended the quarter with net cash of $42.6 million, a debt-to-equity ratio of 6% and debt equal to 0.32 times last-12-month EBITDA. It also has a new $100 million, three-year revolving credit facility with U.S.-based banks.

During the quarter, TAT converted shekel-denominated loans to U.S. dollar-denominated loans, lowering its interest rate and eliminating foreign-exchange exposure associated with those loans and related interest expense.

Looking ahead, management said it expects to begin paying income taxes in 2027 after utilizing tax-loss carryforwards in Israel and the U.S. The company expects an average corporate tax rate of approximately 15% to 19%.

Zamir said TAT entered the fourth quarter with strong demand, healthy backlog and long-term agreements. The company expects momentum to continue into 2027, supported by core MRO activity, distribution opportunities and potential organic and strategic growth initiatives.

About TAT Technologies (NASDAQ:TATT)

TAT Technologies Ltd. is an aerospace and defense company headquartered in Netanya, Israel. The company develops, manufactures, and services thermal-management and other specialized systems used in commercial, military, business, and general aviation applications.

Its product portfolio includes heat exchangers, air-conditioning and environmental-control components, air-cycle machines, pre-coolers, oil coolers, fuel heaters, pumps, and related aircraft systems. TAT also provides maintenance, repair, and overhaul services for aircraft heat-transfer equipment, auxiliary power units, landing-gear components, and other aviation parts.

Through its operations in Israel and the United States, TAT Technologies serves aircraft manufacturers, airlines, aerospace and defense contractors, and government customers.

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