TAT Techs Q3 2026 Earnings Call Transcript

TAT Techs (NASDAQ:TATT) reported third-quarter financial results on Monday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

TAT Techs reported a 20.2% year-over-year increase in Q3 revenue to $55.6 million, driven by broad-based performance and a favorable business mix, particularly in the APU sector.

The company announced a record adjusted EBITDA of $10.9 million, reflecting a 60.9% year-over-year increase, and highlighted significant margin expansion due to operational efficiencies and increased trading and distribution contributions.

Strategically, TAT Techs expanded its relationship with Honeywell, secured a new distribution agreement, and extended an MRO agreement to 2036, positioning itself for future growth.

Management expressed confidence in sustaining momentum into Q4 2026 and 2027, backed by strong customer demand, a healthy backlog, and strategic flexibility for organic and inorganic growth.

Operationally, the company faced and overcame supply chain challenges, particularly in the APU segment, and successfully converted loans to reduce interest rates and currency exposure.

Full Transcript

Matt Chesler (Investor Relations)

The TAT Techs third 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 TAT Techs’ Head of Investor Relations. Joining me today are Igal Zamir, TAT Techs’ President and CEO, and Ehud Ben-Yair, Group 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 Techs assumes no obligation to update forward-looking statements except as required by law, and investors are cautioned not to place undue reliance on these forward-looking statements.

During this call we may also discuss certain non-GAAP financial 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. With that, I’ll turn the call over to Igal.

Igal Zamir (Chief Executive Officer)

Thank you, Matt. Good morning everyone, and thank you for joining us. We appreciate your continued interest in TAT Techs. Q3 was an outstanding quarter for TAT Techs. We delivered quarter revenue up 20% from last year and record adjusted EBITDA of nearly 11 million. Performance was broad based, and profitability grew faster than revenue. Our APU business continued to grow, leveraging new contracts won since the beginning of the year and the benefits of continued improvement in supply chain. Demand is vast across both APUs and heat exchange areas, which we expect to remain the foundation of our growth. Trading, leasing, and distribution meaningfully added to the record results, benefiting from strong customer demand and supporting global fleets and other MROs and our expanded strategic relationship with Honeywell.

Our position in the APU MRO market is strengthened by the comprehensive business model that combines MRO capabilities, trading, leasing, and now distribution. This integrated approach expands the share of the overall market we can address, creates additional growth opportunities, and enhances the value we deliver to our customers. It also strengthens our relationship with existing customers while making TAT Techs an increasingly attractive partner for new customers.

Collectively, these capabilities establish meaningful and sustainable competitive advantage. Furthermore, the new distribution agreement announced in early Q3, alongside our existing MRO agreements, one of which has recently been extended to 2036, provide a strong foundation for growth that we believe can outpace the broader industry. As we scale, we are seeing a clear improvement in our earning power. Margin expansion was driven by revenue growth, a more favorable business mix with higher contribution from APUs and heat exchangers, the addition of trading and distribution revenue, and continued improvement in operations efficiency.

This demonstrates our ability to translate incremental revenue into stronger growth and profitability as we continue to expand the business. The results reflect the strength of our competitive position in the aftermarket industry, the quality of our partner and customer relationships, and the successful execution of our strategy. Demand across our core markets remained fundamentally strong, supported by favorable aftermarket dynamics and our long-term standing relationships with the leading OEMs and customers. The third quarter clearly reflects the progress that we have made. APU is back at full run rate, trading and distribution is adding to our growth, and our cost initiatives are improving profitability. Intake across our business remains at a high level, and we are confident that the momentum will continue in Q4 and 2027.

A few words about the industry. Rising oil prices raise concern about the outlook for air travel and the potential impact on airline spending. However, industry data provided encouraging indicators of continued resilience in the aviation aftermarket. Across six major U.S. airlines, combined maintenance spending increased 3% year over year in the third quarter to approximately $3.3 billion, with trailing 12-month spending up 4%. This suggests that despite higher fuel costs, the demand for flight is there, and airlines continue to prioritize maintenance and reliability for their fleets.

We are also seeing positive trends across the broader aerospace aftermarket, with major industry players reporting continuing growth in engine services, parts, and repairs. The industry continues to benefit from sustained aircraft utilization, favorable pricing trends, and a large installed base of aging aircraft that require ongoing maintenance. While airlines are managing cost and adjusting capacity in response to fuel prices, maintenance remains essential to ensuring safe and reliable fleet operation.

Any potential spending reductions are more likely to initially affect discretionary areas such as certain cabin interiors, upgrades, and retrofits rather than essential maintenance activities. These industry trends are consistent with what we are seeing across our businesses. Customer demand and intake remain strong, particularly in APU and heat exchangers, and we continue to see attractive opportunities across our MRO and trading, leasing, and distribution activities. Taken together, the industry data and our direct customer experience reinforce our confidence in the resilience of the aftermarket and the opportunities ahead of TAT Techs.

In terms of growth engines and outlook, we enter the final quarter of 2026 with strong customer demand, a healthy backlog and long-term agreements, and a solid financial position. Momentum is building and we expect to finish the year on a strong note. As we continue to scale our core businesses, we expect to deliver meaningful operational leverage, sustained margin improvement, and deepen our relationships with existing customers while expanding our reach to new ones.

Looking beyond 2026, we believe TAT Techs is well positioned to build on this momentum in 2027. Our core markets remain attractive, our customer relationships continue to deepen, and our expanded relationship with Honeywell strengthens our competitive position and creates additional opportunities in distribution and MRO. We believe we have a clear strategy and the financial flexibility to pursue both organic growth and strategic opportunities. We are excited about the opportunities ahead.

Our focus remains on executing consistently, capitalizing on strong market demand, expanding our capabilities, and delivering sustainable, profitable growth that creates long-term value for our shareholders. With that, I will turn the call over to Ehud for a more detailed review of our financial results.

Ehud Ben-Yair (Group CFO)

Thank you, Igal. Hello everyone. Thank you for joining us. This was indeed a record quarter. Our third quarter results reflect growing customer demand, a more favorable product mix, and the benefits of our disciplined cost management. Third quarter revenue increased by 20.2% year over year to a record of $55.6 million compared to $46.2 million in the third quarter of 2025. For the first nine months of 2026, revenue increased by 13.8% to $149.6 million compared to $135.5 million in the prior-year period. On top of the double-digit organic growth in revenue, profitability was a particular highlight of the quarter. Gross profit increased by 48.2% to $17.2 million, representing a record gross margin of 30.9%.

This improvement reflects several positive developments: capacity shift from landing gear to a higher-margin APU business, healthy trading activity, the addition of distribution, and the full impact of the operational efficiency initiatives that we discussed last quarter. For the first nine months, gross margin reached 27.1%, an improvement of 250 basis points year over year. We believe that this year-to-date performance provides a meaningful indication of the underlying progress in our business and should be seen as a reasonable margin profile for our near business.

Operating income was $9 million, or 16.3% of revenue, compared to $5.3 million, or 11.4% of revenue, in the third quarter of 2025. For the nine months, operating income increased by 27.3% to a level of $17.6 million. Net income increased to $7.7 million compared to $4.8 million in the third quarter of 2025. Diluted earnings per share increased to $0.58 from $0.37 in the prior-year quarter. For the nine months, net income increased by 58.3% to $19.1 million.

As a reminder, the second quarter included a one-time gain, net of taxes, of $3.4 million on the sale of an equity method asset. Excluding this non-recurring benefit, net income for the first nine months would have been approximately $15.7 million. Diluted earnings per share were $0.46, represent a 42% increase to .02 in the prior-year period. During the third quarter we also converted shekel-denominated loans into U.S. dollar-denominated loans. By this we reduced the interest rate and eliminated the foreign exchange exposure associated with the loans and the related interest expenses. This further strengthens our financial position and reduces our exposure to currency fluctuations.

Adjusted EBITDA increased by 60.9% to a record of $10.9 million, or 19.6% of revenue, compared to $6.8 million, or 14.6% of revenue, in Q3 2025. For the first nine months of the year, adjusted EBITDA increased by 47% to $27.4 million, or 18.3% of revenue. To summarize the profitability parameters, the gross margin and adjusted EBITDA margin put us at the highest standard compared to our peers and competitors. For the coming quarter, our focus is on sustaining the improved profitability as we move into 2027.

Cash flow from operating activities was $3.8 million in the third quarter, despite the $10.6 million investment in inventory, most of which was associated with adding the inventory needed to support the new distribution channel which we announced last quarter. We view this inventory investment as supporting the growth of our business and our ability to serve customers through an expanded product offering. Our financial position remains strong, and we continue to manage our working capital and investment requirements with discipline as we grow.

With regard to taxes on income, as we have discussed previously, we expect to utilize our remaining tax losses carried forward in Israel and the United States and begin paying income taxes in 2027. Based on our current expectation, we anticipate an average corporate tax rate of approximately 15% to 19%. While this represents a change from the benefits of our historical tax attributes, it reflects the continued development of our business and our expectation of sustained profitability.

Turning to our individual product lines, we continue to see encouraging performance across our portfolio. Our APU business continues to be a standout performer. APU revenue increased by 34.4% in the quarter and 26.8% year to date. Overcoming supply chain challenges and the return to full operational run rate, combined with sustained customer demand, has contributed meaningfully to our growth and profitability. We are encouraged by this momentum, and we expect APU to remain an important driver of our business.

In heat exchange, revenue increased by 7.3% in the third quarter and 5.2% during the first nine months of 2026 compared to the respective period last year. This business serves both OEM and MRO customers, and we are pleased with its steady growth which is consistent with our expectations. This segment provides a reliable long-term foundation for the company. Trading, leasing, and distribution delivered a very strong quarter, with revenue increasing by 85.5%. The performance reflected several meaningful transactions during the quarter alongside the contribution from the distribution business. Year to date, revenue in the segment increased by 42.9%, which provides a broader perspective on its growth trajectory. As expected, quarterly revenue can fluctuate depending on the timing of individual transactions, but we are encouraged by the ongoing demand and the additional opportunities created by our expanded product offering and customer reach.

These three business lines now accounted for nearly 85% of TAT Techs’ total business. Landing gear remains a smaller part of our portfolio, accounting for less than 4% of revenue this quarter, and continues to face certain parts availability and supply chain challenges. We shifted capacity to APU until such time that landing gear supply chain issues will be resolved. Backlog at the quarter end was $577 million compared to $615 million at the end of the second quarter. The decrease reflects $34 million in landing gear contracts that were removed from the backlog due to the shortage of components to perform the work on those contracts. Excluding those contracts, backlog was essentially unchanged even as we delivered record quarterly revenue.

To summarize, our two largest business segments continue to grow at an encouraging pace, providing a solid baseline for the business, while trading, leasing, and distribution provide additional growth opportunities and broaden our capabilities. We ended the quarter with net cash of $42.6 million. Our debt-to-equity ratio was 6%, and our debt-to-last-12-months EBITDA ratio was 0.32x, reflecting a strong financial position and very low leverage. In addition, we secured a new $100 million, 3-year revolving credit facility with several U.S.-based banks that we discussed on our last call.

We believe the combination of our net cash position, leverage, and available credit capacity puts us in a strong position to execute our short-term working capital needs as well as our long-term strategy while maintaining financial discipline. This is particularly important as we look forward to 2027 and evaluate opportunities to expand our capabilities and create additional value for shareholders. Following an excellent third quarter, we enter the final stretch of 2026 with strong momentum and a solid foundation for continued growth. Our results also demonstrate that TAT Techs is not only growing but also becoming more profitable. We believe TAT Techs is well positioned to build on its performance in 2027, supported by strong customer relationships, attractive market opportunities, improving earning power, and the financial capability to pursue both organic growth and strategic acquisitions.

And with that I will return the call back to Igal.

Igal Zamir (Chief Executive Officer)

Thank you, Ehud. Before we move to questions, I want to thank our employees around the world. Their dedication, professionalism, and close coordination with our customers and suppliers were instrumental in delivering the outstanding quarter. As we close, I want to leave you with three takeaways. First, our fundamentals have never been stronger. Customer demand keeps growing, and backlog and long-term agreements remain healthy. Second, we are deepening our competitive position and expanding our growth opportunities. Our APUs and heat exchanger businesses continue to perform well, while our expanded relationship with Honeywell adds new distribution rights and extended our MRO authorization through 2056.

Third, we have the financial strength and strategic flexibility to keep moving forward. Our strong balance sheet, significant liquidity, and financial resources position us to invest in all our businesses, pursue inorganic strategic growth, and capitalize on opportunities as they emerge. We are finishing 2026 with tremendous momentum following this record quarter. We believe TAT Techs is well positioned to continue growing in 2027, building on the strengths of the core business, customer relationships, and expanding capabilities. We are proud of what our team has accomplished, confident in the opportunities ahead, and focused on translating them into sustained, profitable growth for our shareholders. I want to thank you for your continued support, and we look forward to updating you on our progress.

Thank you for your continued support, and with that I will turn it to Matt for questions.

Matt Chesler (Investor Relations)

Thank you. We’re now going to open it up for the Q&A session from Zoom. There are two ways you can participate. The first is to use the raise-your-hand icon which is at the bottom of your screen. Clicking it will alert us that you would like to ask a live question, and we will place you in a queue and call on you. You will remain on mute until called on. The second way to participate in Q&A is to use the Q&A widget, which allows you to type in your question.

We will take some questions from there as well, and if we run into a time constraint, someone from the IR team will follow up with you if your question is not addressed on today’s call. With that, we’ll pause for a moment to build the queue. Let’s jump right in. The first question is from Jonathan Siegman from Stifel. Jonathan, please unmute your line and go ahead.

Jonathan Siegman (Analyst)

Good morning. Thank you for taking my questions, and congratulations on the very strong revenue and margins. Maybe just referring back to Q2, I recall you mentioning maybe taking the average of the first two months of revenue as kind of a baseline and moderating your expectations for the second half. Clearly Q3 was stronger on the APU side. I was just wondering if you could comment a bit more on maybe why revenue was stronger than you anticipated, and how we should think about Q4.

Thank you.

Igal Zamir (Chief Executive Officer)

I think that it’s a combination of a few factors. First of all, we announced several large wins of APU contracts since the beginning of the year, and we are seeing more and more of these contracts coming to our shop. The second key parameter is supply chain. We all know where we started here in Q1 with a major challenge, and in Q2 we reported that things are getting better and continued to get better in Q3, and I believe that they will continue doing so moving forward.

So as we stabilize our supply chain and we have the ability to bring more units to the finish line, and improving our own internal capacities and ability to bring more engines, is the third factor—improving efficiency. So all in all we see a very positive trend which we believe will continue, because we are enjoying a very strong intake on the APUs. I hope that I answered your question.

Jonathan Siegman (Analyst)

Yes, thank you. And then maybe just a touch on the landing gear. You had talked about a strong cycle. It sounds like de-emphasizing that at least in the near term, the adjustment to the LTAs. Just how much of this is, are they able—is somebody else able to get these parts more effectively than TAT Techs, or is this work just deferred? Thank you.

Igal Zamir (Chief Executive Officer)

Well, first of all, I would say the landing gear is such a small portion of the TAT Techs business, I don’t know that we need to spend too much time on it. The second thing, I don’t know if other people have the ability to obtain parts that we cannot obtain. I know about our business, and I believe that, like anything else, some customers may find that opportunity, some customers will wait, and time will tell.

Matt Chesler (Investor Relations)

And the next question is from Josh Sullivan at JonesTrading. Josh, please go.

Josh Sullivan (Analyst)

Good morning.

Igal Zamir (Chief Executive Officer)

Thanks, Josh, how are you?

Josh Sullivan (Analyst)

I’m doing well. The new distribution agreement—since announcing it, has it opened the aperture on your thoughts of verticals and services you might be interested in, particularly as you begin to think a little bit more about M&A?

Igal Zamir (Chief Executive Officer)

I think that in general the trading and distribution is a very interesting component or segment in the industry from my perspective for the coming few years. As long as the supply chain doesn’t stabilize—and if we look at what the majors are reporting and their projections for how long it takes to really stabilize the industry and catch up with demands of new fleets—as long as these fundamental trends are there, USM parts and trading is an essential portion of the ability to serve customers, and I believe it’s here to remain for a few good years.

So we’re definitely, definitely interested in expanding opportunities in this direction.

Josh Sullivan (Analyst)

And then the investment in inventory—you know, I think you said much of it was growth-focused—but is any of it strategic, kind of supply chain buffer at this point?

Igal Zamir (Chief Executive Officer)

Not necessarily, no. I think that when you sign a distribution agreement, you need to make sure that you will have inventory to support your customers when they are calling you, whether it’s airlines or other MRO shops. You just need to make sure that you have inventory. So if we had an inventory model that was supposed to support only our own shop, and now we need to make sure that we will have sustainable inventory to support our customers in an environment with extended lead times—and sometimes months and months before you get parts—you need to make sure that you have enough in stock to support the demand.

Josh Sullivan (Analyst)

And then just one last one. We get a lot of questions on APU demand cycles versus primary engine cycles as we go into ’27. Do you have any thoughts you want to share just on the APU dynamics?

Igal Zamir (Chief Executive Officer)

Well, I’m not an expert on the main engine side, but on the APUs I think that in most cases the APUs are maintained by demand. Sometimes you take an APU because certain parts need to be replaced after X amount of cycles, but in the vast majority of the cases an APU is removed when there is a need to repair something. So as long as the fleet continues flying, the APU demand will stay steady. There is less discretion in terms of when to time the maintenance issue.

Josh Sullivan (Analyst)

Great, thank you for the time.

Igal Zamir (Chief Executive Officer)

Thank you.

Matt Chesler (Investor Relations)

The next question is from Ben Cleve at StoneX Benchmark. Ben, please go ahead. Ben, it’s your turn, please.

Ben Cleve (Analyst)

Sorry about that. Thanks, guys. Thanks for taking questions, and congratulations here on a great quarter. Are we there now? Third time’s the charm to unmute—I did it. Congratulations on a great quarter. Only one question for me regarding the parts and trading business. Obviously the third quarter growth rate was just exceptional. I understand that this is a lumpy business, and I’m curious about the degree to which the expanded scope of this segment is—do you think that expanded scope is going to allow for that to be a more consistent business? So still some lumpiness, but maybe a little bit more consistent than it has been historically, or am I reading too much into that?

Igal Zamir (Chief Executive Officer)

I think that you can expect the fluctuation between the quarters to continue. I wouldn’t say volatility, because these are very large deals, and it depends on availability of assets. You know, finding as-removed assets in the market, repairing them, and closing these deals that are typically larger by nature takes more time. So there will continue to be fluctuation between the quarters. I think that when we look at year to date, where we are—that’s the base that we are planning on going from.

Ben Cleve (Analyst)

Very good. I appreciate that. Thanks for taking my questions. I’ll get back in queue.

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.