TAT Technologies Ltd.

My name is Matt Chesler, and I'm a partner with FNKIR, a U.S.-based investor relations firm supporting Iran Younger, TAT's internal head of investor relations. Hosting today's call is Igal Zamir, our president and CEO, and Ehud Benyar, 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 implied 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 T&T 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 yesterday evening's Form 6K, our earnings release, and the investors section of our website at tat-technologies.com for a reconciliation of non-GAAP financial measures to GAAP measures. 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 by other companies. With all that, I would now like to turn the call over to Igal.

Good morning, everyone, and thank you for joining us for the second quarter call. I appreciate your interest and continued support as we review TAT technologies performance and discuss our strategic direction moving forward. Q2 marked another quarter of double digit revenue growth for TAT, reflecting the impact of the strategic initiative implemented over the last few years. We continue to outpace the industry peer group averages, and we are doing it organically to market share gains, delivering solid revenue growth, margin expansion, and driving sustainable profitability. This was the fourth consecutive quarter of sequential gross margin improvement, exceeding 25% for the first time, and demonstrating our improving operational efficiencies and the management focus on expanding margin. Importantly, we also enhance long-term visibility by increasing our long-term agreement value and backlog by $85 million to $524 million. This growth reflects both new contract swing, including programs tied to more recently certified platforms and continued expansion within our customer base. We achieved this 18% year-over-year revenue growth and even greater growth in the long-term agreement and backlog, even as we experienced some weaknesses in MRO intake. This production is due to strategic diversification of our revenue between trading, MRO, and OEM. I'd note that during the last month, MRO intake became re-accelerating, which is reinforcing our near-term confidence. In parallel, with strong commercial performance, we further strengthened our financial position and simplified our capital structure. During the quarter, we facilitated a successful public offering and welcome new group of institutional and investor, a majority of which are located in the US. At the same time, we increased our financial flexibility to pursue potential creative acquisitions that enhance our growth profile. With this fundraising complete, we are well prepared to execute the next phase of our strategy, adding new businesses line to related categories to our targeted M&A, to expand our addressable market and accelerate growth. In parallel to this, under the leadership of our chairman, we focused on strengthening our board of directors with an overall goal to align our board composition with our growth strategy and new challenges, including M&A, capital markets, US market background, and industry experience. Now let's turn into our financial performance. Second quarter revenue increased by 18% to $43 million, up from $36.5 million in the same period last year. For the first six months of the year, revenues was up more than 20% in comparison to the first six months of last year. While we increased revenue in a double digit pace, strong booking led to even larger increase in our long-term agreement value and backlog, which expanded by $85 million to $524 million. This progress validates our belief in growing customer demand and reinforces our business strategy of expanding our addressable market by adding new capabilities. Our gross profit increased by 35% and our gross margin expanded by 320 basis points to 25.1% compared to 21.9% in the second quarter of last year. This improvement is an outcome of our ongoing effort to optimize cost structure, improve operational efficiencies, and enhance our product mix. Adjusted EBITDA increased by 41.9% to $6.1 million, translating to an adjusted EBITDA margin of 14.0%, a notable improvement from 11.9% margin, I'm sorry, in the same period last year. TAT continued to deliver operating leverage as a result of our disciplined expense management. I'd like to note that we continue to believe that there are opportunities to further improve our profitability, expanding both our gross margin and EBITDA margin as we scale. We also generated approximately $7 million in positive cash flow from operation in the quarter, which is a further testament to the progress we are making and to the strength of our business model. Our strong performance comes at a time when the aviation sector is facing range of macroeconomics and operational headwinds. While we are not immune, we believe that our business is well positioned to manage through them. It is not uncommon for airline fleets to adjust discretionary maintenance activities based on evolving budget and operational needs. This creates periods of software intake followed by surges in demand, which adds complexity and impacts short-term visibility. We've seen this dynamic more clearly in the recent months. What differentiate us is our ability to shift capacity in real time. This quarter, that agility helped us offset softer MRO volumes by capitalizing on trading opportunities and to protect our profitability. While the level of market volatility does not appear to be dissipating, we believe that our model remains doable. Our growing traction with customers and OEM partners combined with our operational flexibility support our long-term strategy and ability to execute in a dynamic environment. Growth in APU work in the second quarter increased 12% year over year, but decreased slightly on a sequential basis, reflecting this increasing volatility. The sequential APU revenue dip reflects a short-term shift in customer behavior, not a change in long-term fundamentals. In response to the broader macro environment, carriers proactively deferred non-critical maintenance to preserve cash and to better manage operating expenses. But the reality is that with aircraft utilization remaining very high, especially among the aging fleets, the need for services that are not discretionary. It is sometimes delayed, but it's not diminished. Offsetting the sequential APU dip was a tripling of our revenue from trading and leasing. This segment showcases our operational flexibility and synergies. With modest MRO intake in the quarter, we identified the immediate market needs for exchanges programs, enabling us to maintain productivity and profitability while servicing real-time customer needs. Long-term, our robust and growing backlog positioned us well to continue and outperform the industry. We expect ongoing quarter-to-quarter volatility, including potential short-term fluctuations in MRO intake in the near time. As we continue to scale, we expect these variations of quarter-to-quarter to be less of an impact, but this is the reality of the aviation industry in general and MRO business in particular. We have constructed our business to be as resilient as possible to these factors. From our position of strength and in line of our strategic growth plan, we continue to seek opportunity to expand our capabilities. This includes exploring strategic acquisitions, There are opportunities to make a creative bolt-on acquisitions that would increase the addressable market and open additional natural adjacencies. Our goal is to enhance the value that we provide to our strategic customers. And the more services we can provide to our customers, the more valuable we will be for them. In summary, TAT technologies continue to deliver performance that outpace the industry. Our strategy is working, providing the scale to position us as a meaningful provider to the aviation industry and governments, and the diversification to navigate supply chain and other challenges common to the industry. Longer term, my optimism remains, even though my short-term outlook remains cautious. We are generating encouraging demand to our products and services, strong interest from both new and existing customers, and we have the potential to achieve long-term growth rates that significantly outpace the broader industry, as well continuing to expand margin. In closing, before I turn the call to Ehud, I want to take a moment to thank our dedicated employees for their professionalism and hard work. Our achievement would have not been possible without their effort, and they continue to set the standard for the industry. Thank you, and with that, I'll turn it over to our CFO, Ehud Ben-Yair, to provide further insights into our financial performance and business outlook.

Ehud Ben- Thank you, Gal. Good morning, everyone. Good afternoon for those who joined us from Israel. I will review some financial elements as well as cash flow and balance sheets. We continue to see growth in revenue and improvement in profitability elements quarter after quarter for already nine quarters in a row. Revenue in Q2 of 2025 grew by 18% to $43.1 million compared to $36.5 in Q2 of 2024. The revenue in the first six months of 2025 grew by 21% to $85.2 million, compared to $70.6 million on 2024. Year over year, the growth was driven from all product segments, mainly MRO activity on the commercial side of the business. Revenue growth in Q2 of 2025 was achieved despite the slowdown in MRO work that happened during the quarter. Looking into the second half of the year, we see again strong demand for MRO work, mainly on the APU and lending year. As we indicated in the past, our growth is mainly dependent on overcoming supply chain issues from the larger OEMs. In the second quarter of 2025, gross profit was $10.8 million and reached the 25.1% gross margin. This is an important milestone that we indicated at the beginning of the year. Crossing the 25% gross margin put us on the same game field with the best industry leaders. The gross margin in the second quarter of 2025 grew by 36% compared to the second quarter of 2024, which is exactly doubling the increase in revenue year over year. In the second quarter of 2025, operating income increased by 62% to $4.4 million, which is 62% increase year over year. Again, almost doubling the increase of the gross margin. This was achieved mainly from the growth in revenue, our operational efficiencies program, and despite the increase in SG&A expenses, which further emphasize our operational leverage. During the second quarter of 2025, we suffer from the strength of the Israeli shekel compared to the US dollar by 10%. This resulted in an increase of the cost of exchange rate differences by over half a million dollars. This is a re-evaluation of over $10 million of loans which were taken four years ago marked in Israeli shekel. As a result, we saw a reduction of $400,000 on the net profit in Q2 of 2025 compared to Q1 of 2025. Despite everything that I mentioned, net profit increased during Q2 of 2025 by 25% compared to Q2 of 2024, and by 53% year over year in the first six months of 2025. Please note that our normal average quarterly interest rate are about half a million dollar on a quarter. All the rest are fluctuation of exchange rate differences, mainly on the loans. The company does not hedge the balance exposure and the cash flow. I also want to emphasize that it is a non-cash expense. And as it looks right now, we are not expecting any additional expenses of this nature in Q3 of 2025. EBITDA continued to grow to $6.1 million in Q2 of 2025. This is a 39% increase year over year. and by 47% year-over-year in the first six months of 2025. May I draw the attention of the audience to the 14% EBITDA margin in Q2 of 2025. We are on the right direction to achieve the 15% EBITDA margin that we indicated at the beginning of the year. On July 2024, the One Big Beautiful Bill was approved in the US. This bill has some positive impact on our tax exposure, From learning this bill together with our US tax advisor, and we're still carefully learning it and waiting for more instruction from the IRS, it looks like we will not pay taxes in the US this year. And this bill further, because this bill further increases our carry forward losses that can be utilized in the short term. My indication about the Israel tax exposure remains the same, and I still believe that we will start paying taxes by the end of this year in Israel. On the cash flow side, in Q2 of 2025, cash flow from operational activity was positively strong and was $6.9 million. It was also positive by $1.9 million during the first six months of 2025. And this is compared to a negative cash flow of $5 million in the first quarter of 2025. The main reason for the positive cash flow were better collections from our customers and improving payment terms from our suppliers. During June of 2025, the company completed the financing round of $45 million. We closed short-term loans of close to $10 million in order to save about $200,000 a quarter on interest expenses. This will bring down the interest expenses to an average of $300,000 on a quarterly basis. As indicated on the prospectus and during the roadshow, the money will be used in order to strengthen our balance sheet, provide working capital to support the growth of our operations, and mainly provide funds for strategic deals that will further accelerate the growth of the company in the near future. By the end of June, total loans are at the level of $12.4 million and cash at the level of $43 million. Debt to EBITDA ratio is very low and currently at 0.5. TAT's shareholder equity is $166 million on a balance of $214 million, leading us to a very strong equity to balance ratio of 78%. The strong balance sheet together with the minimal debt open opportunities to leverage more debt together with our cash to be used for strategic deal in the near future. In terms of the revenue by product line, looking at the revenue per product line, all our strategic line of product grew double digit year over year. This is perfectly aligned to our strategy and expectation. During the second quarter, we saw some slowdown in intake of MRO, mainly on the APU due to volatilities and uncertainties that existed in the commercial aviation industry. By the way, by the same way, that the volatility impacted the share in the stock market during April and May, mainly driven from the uncertainty of the tariff impact. The operational capacity on the MRO was switched to repair APU and lending gear for exchanges, which resulted in a higher revenue indicated under the trading line of product. Starting from mid-June, The market's stable, and we are now seeing an upward trend in intake for MRO. Therefore, I strongly recommend investors, when coming to analyze the revenue by product, to look at the 12-month trend per product and not to focus on small fluctuation between the quarters. During the last quarter, we announced a major win on the APU side of business, which further strengthened our midterm approach to the organic growth of the APU segment. We are certain that both MPU and lending year segment will grow, will show growth year over year and align with our strategy. With regards to the backlog, backlog and LTA value continue to grow constantly. It is at the level of $524 million by the end of 2025, an increase of $85 million compared to last quarter. During the second quarter of 2025, we announced a major win with one of the major cargo carriers in the world for a contract value of 40 to $55 million, which is now under the APU segment on our LTA value. This one and some other small size contract are a major contributor to the increase in the backlog and LTA value, which will secure the organic growth of the company in the coming years. The total backlog and LTA of the APU and lending year has shown is grown to $204 million compared to $170 million at the end of Q1 of 2025. It is also important to emphasize that by the end of Q2 2025, the APU backlog contain multi-millions contract for the 777 APU which are new and were not part of our backlog in Q1 of 2025. This further emphasizes our go-to-market approach for the new engines that are expected to be a major organic growth engine for the years to come. Also, when talking about growth opportunity, the overall cycle of the E170, the Embraer 170 landing gear is starting now. We're well positioned with the signed contract to sell the largest world fleet and with some other initiatives. And by this, I have concluded my report, but before handling over to the organizer, I want to use this opportunity and thank all of the existing investors and new investors that took part in the last capital raised in the secondary round for the trust and confidence in TAT and its management and believing in all of the good that is yet to come. I want to thank my team that diligently worked on the deal for the last five months And great thank you for the underwriters, the legal advisors, auditors, IR frames, and everybody that supported us. And by this, I hand over to the call for final remarks and questions.