TAT Technologies Ltd.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to TAT Technologies' fourth quarter 2024 earnings conference call. Please note that today's conference call may be recorded. I will be your host, Matt Chesler, from the U.S.-based investor team. Joining me today are Yigal Zamir, our president and CEO, and Ehu Ben-Yeir, our 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 applied by these forward-looking statements. The forward-looking statements are made as of the date of this call and, except as required by law, TAT Technologies 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 Technologies' actual results to differ materially from those indicated in these forward-looking statements, Please see our annual report on Form 20F for the fiscal year ended December 31, 2024, 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 measures. Please see today's press release. our earnings release, and the investor section of our website at tat-technologies.com for reconciliation of non-GAAP financial measures to GAAP measures. Non-GAAP financial information should not be considered in isolation from or as a substitute for or superior to GAAP financial information, but is included because management believes it is 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 the company uses have limitations and may differ from those used by other companies. With all that, we would now like to turn the call over to Egal.

Thank you, and good morning, everybody. And thanks for joining us for our fourth quarter and annual results call. 2024 was another solid year of fast growth, increasing profitability and strong execution of our strategic business plan. We are very proud in the result. We delivered a 34% increase in revenue to more than $150 million in revenue and grew net income by 139% comparing to 2023. The fourth quarter was just as strong, with revenue increasing by 29%, to $41 million compared to Q4 of 2023. In terms of profitability and margin, we also increased this year with gross margin increasing from 19.7% in 2023 to 21.7% this year, and as you saw, more than 23% in Q4. And adjusted EBITDA margin increasing from 9.7% in 2023 to 12.2% in 2024. Major efforts have been made and are still ongoing to continue and improve profitability in 2025. And we expect the trend to continue. A lot of emphasis on improving our profitability, not just growing the top line. This year we'll launch our new capabilities, especially our APUs 131 and 500. Those new capabilities open up to new substantial markets. A lot has been done during 2024 to build ourselves towards this blue ocean market and it was reflected in our results, revenue increase and other things. We did came with a lot of investment in inventory and we are well positioned going into 2025 to continue and enjoying this very large market. Another thing is that during the year, in 2024, we focused on expanding our trading and leasing capability, which allowed us to enjoy a built-in advantage by using our in-house MRO capability to purchase systems and components in the market, overhaul them, and trade or lease them to our customers, especially in periods where the industry is challenged with... Supply chain challenges and delivery challenges, having the materials and the components available on the shelves opens opportunities, also helps us centralize our supply chain, and we aim to continue growing this activity and strengthening it during 2025, and we are enjoying very high profitability on it. Our backlog and LTA value at the end of 2024 increased to $429 million, comparing to the $406 million at the end of 2023. And we are very pleased with it because despite on top of the growth that we were able to show in revenue in 2024, we booked more and more new orders, and we want new business. So we are ready, and it's a good reflection of the potential growth in 2025, 2026. Supply chain continues to be a challenge in the industry, especially with parts and materials availability, and longer than normal times. In order to overcome the challenges and be ready for the expected growth in 2025, but also in order to provide great service to our customers and have assets ready for trading, we implemented a strategic sourcing plan, which reflects in our inventory. You can see in the inventory, the balance of the inventory at the end of the year, the growth. Most of it, if not all of it, is strategic decisions that we made to get ready with parts, materials, and materials. full components like engines or landing gears available on the shelf so we can support 2025 business and continuous growth. As an outcome of the strategic and the implementing of the supply chain strategy, we basically used the profits that we generated throughout the year and reinvested it to do two things. First of all, to support the working capital, but also to support the inventory buildup. And it reflects in a negative operation cash flow for the year, but something that we did as a strategic decision in order to be ready for this year. So at the end of the day, bottom line, we are summering a meaningful year with growth rate that is much higher than the industry, profitable and expanding our margin. While there are certain challenges ahead of us, mainly gaining new contracts as the new player in the 131 and 500 APUs, and overcoming the supply chain, we are looking forward to another strong year in 2025, with focus on improving performance to our customers, increasing profitability margin, and growing the top line. With that, I will pass the speaking to Ered Ben-Yair, our CFO, to review the financial report. Thank you, Igor.

Good morning, everybody. And thank you for joining us today. As Igor started We completed a very successful year. We'll elaborate a little bit about the numbers and the profitability elements, both for Q4 of 24 compared to Q4 of 23, and also for the full years, 2023 versus 2024. So revenue in Q4 went up to $41 million compared to 38.8. It's an increase of 29% quarter to quarter. Gross margin in Q4 of 24 went up to 23.2% compared to 21.9% in Q4 of 23%. And the adjusted EBITDA went up by almost 60% from 3.4 in Q4 of $23 million to $5.4 million in Q4 of 24. Earnings per share on a fully diluted basis went up to $0.32 per share. It's a 658% increase compared to Q4 of 23%. Looking at the year to year results, so the full year of 2024 ended with $152.1 million of revenue, compared to 113.8 in 2023, which is an increase of 34%. The gross margin went up from 19.7 in 2023 to 21.7% of revenue. which will present $33 million of gross margin. The operating profit went up as well, almost doubled itself or even doubled itself from $6.1 million to $12.5 million. And the adjusted EBITDA went up from 11.1 in 2023 to $18.6 million in 2024, representing a 67% increase in the adjusted EBITDA. Net profits also more than doubled, 100% increase between the year of 2023. They were $4.7 million compared to $11.2 million And in the year of, for the full year of 2024, the earnings per share on a fully diluted basis was a dollar per share representing 95% increase compared to the year of 2023. One of the things that we are very proud of them and we are elaborating them quarter after quarter is that the fact that the company is growing its revenue quarter after quarter, but We're more proud with the fact that we're improving our gross margin, operating margin, and obviously net profit and adjusted EBITDA. So all profitability elements. went up quarter after quarter so gross margin went up for 21.9% in Q4 of 2023 and gradually went up to 23.2% in Q4 of 2024 and the same with all other operating margin net profits and adjusted EBITDA Again, I must emphasize, even though we're presenting quarter after quarter, I believe that in order to better analyze the company, you need to look at more four-quarter results rather than trying to analyze and understand exactly what happens every quarter. Any small deal of two, $3 million can make a change in the quarter, both revenue and profitability. Another analysis that we are showing every quarter is the revenue per product line. So you can see that we're really emphasizing about our four major product lines, which are heat exchangers, APU, the trading and listing, and the lending gears. uh so heat exchangers both oem and mro went up from 13.3 million dollar in q4 2023 up to 16.6 million dollar in q4 24 apu segment went up from 9.2 million dollar in q4 23 to 13 million dollar it's an increase of 42% in the revenue of this segment. Trading and listing also went up for $2.2 million in Q4 of 23, up to $3.3 million in Q4. With an uptick of 5.7 that we reported in Q3 of 2024. And the lending year is already at the level of $2.8 million with expecting revenue to grow dramatically in 2025. Looking at the year by year numbers of the major product line, you can see that heat exchange activity went up from $33.1 million in 2022 to $63.2 million in the year of 2024. APU with a dramatic increase from $18.7 million in 2022 up to $43.3 million in 2024. And obviously, as Igor said, we just started scratching the surface of the new APU engines capabilities that we have, and we expected to see another ramp up in 2025. And the trading and leasing went up from $6.2 million to $13.9 million. Lending year is pretty stable. And as we explained, there was a cycle in the lending year activity that we are presenting. Another cycle of four to five years started in Q4 of 2024 and expected to ramp up in year 25 and 26 to a much higher numbers. So again, we're very proud with increasing not only the revenue, but also all the profitability elements. So revenue is going up, gross profit and margin are going up. And you can see the table is steady growth quarter after quarter, the same with the operating margin and the net income. Two things that I'm asking investors to be aware of that impact the net income of the company. One is the interest expenses that we are paying. We are currently sitting on almost $20 million of loans, some of them long-term, some of them short-term. with interest rate of anywhere between 7.8 to 8.3 percent of interest this is resulting in almost two million dollar interest expenses in the year of 2024 and expected to continue this way for the year 2025 and the second element is tax expenses um which are going to go up in 2025. The company is not going to pay taxes in 2025, but we're going to record the tax expenses, which are mainly due to changes in the tax assets and liability on our balance sheet. And we're expecting to start paying taxes by the end of 2025, starting 2026. In terms of the business breakdown, so again, the company is really focusing its activity on the commercial aviation side of the business, less on the military. The military revenues in 2024 were 18% out of the total revenue, and commercial were 82%. In terms of the two major sides of business, which are OEM and MRO, So OEM were 27% in Q4 and MRO 73%, but looking at the full year, OEM were 32% and MRO 68%, which is very, very steady if you're looking also backwards to the years of 2023 and 2022. In terms of the geographical distribution of the revenue, North America obviously continues to be very strong. 70% of our revenues are coming from U.S. customers, 11% out of Europe, and the rest of the world are the rest. And the last slide is about the backlog. So you can see on the left side that backlog is steadily going up from $400 million in 2022 to $429 million at the end of 2024. 51% of it are the heat exchangers, the long-term agreement. APU agreements, which are usually for anywhere between three to five years, are 28% of the backlog, and 14% of the backlog are, again, lending contracts. As we said before and in the past, we are going to participate in large bids on the new APU segments on in the year of 2025 and on. And once we start winning those contracts, you will see another step jump in the backlog number. And by this, I'm returning the call to Igal Zamir, our CEO.