TAT Technologies Ltd.

Good morning, and thank you for joining the TAT Technologies fourth quarter and full year 2025 earnings conference call. This call is being recorded. My name is Matt Schessler with FNKIR, a U.S.-based investor relations firm supporting Iran Younger, TAT's internal head of investor relations. Joining me today are Egal Zamir, TAT's president and CEO, and Ehud Ben-Yeir, TAT's 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 20F. TAT assumes no obligation to update forward-looking statements except as required by law. Investors are cautioned not to place undue reliance on these forward-looking statements. During this call, we may discuss certain non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measure are available in our earnings release issued yesterday and in our form 6K filed with the SEC. With that, I'd like to turn the call over to Egal.

Thank you, Matt, and good day, everyone, and thanks for joining us. We appreciate the continued interest in TAT, and thanks to our shareholders, analysts, and partners for your ongoing support. We are summarizing here 2025, which was another strong year for TAT Technologies. We delivered record revenue, record portability, and significant growth in the value of our long-term agreements. We're especially pleased that we accomplished this performance amidst a backdrop of industry challenges, including tariffs and ongoing supply chain constraints across the aviation ecosystem. Equally important, we continued strengthening the organization itself. Over the past year, we have invested in building the team and operational capabilities needed to support the next phase of growth and scaling the company. We also completed an important corporate milestone transitioning from a controlled company to a widely held public company with a growing base of U.S. institutional investors. This represents a meaningful step in the evolution of TAT and further aligns with our global capital markets. TAT operates as a diversified, multi-product aviation platform, and our performance continues to outpace the border maintenance, repair, and overall market. As we enter 2026, we do so from a position of strength, with the right team, the right capability, strong financial position, and expanding high-quality backlog. Looking at the results, when I'm looking at the full year, 2025, revenue increased in 70%, while fourth quarter revenue grew 13%, this marked 12 consecutive quarters of double-digit revenue growth for TAT. All organic. Our growth during the year was broad-based across the business and reflects the strength of our diversified portfolio as well as continued market share gains. While the growth rates moderate somewhat in the fourth quarter, overall, it was another very strong year. Postability during the quarter was affected by ongoing supplying volatility, particularly within our APU and lending year segments, yet it was still a record for TAT. Importantly, backlog and long-term agreements continue strengthening the fourth quarter. The number and the value of contracts with our customers continues to increase, reflecting sustained demand for our services. As a result, the value of our long-term agreements and backlog reached approximately $550 million, up from $520 million at the end of third quarter, and significantly higher than the $429 million reported at the end of 2024. While we are facing continuing supply chain challenges in Q1, overall we remain very optimistic about the outlook for 2026. In terms of some comments about the product lines, In our APU business, we delivered a strong year of growth, with activity rebounding steadily after the slower start of the year. We made meaningful progress on several strategic contracts and increased our market share in the 500 and the 200 APU categories. further strengthening our position with key customers. Our OEM license capabilities continue to support the competitive turnaround time and a high level of service quality. While intake in this segment can remain somewhat volatile from quarter to quarter, as we saw in fourth quarter, the underlying demand fundamentals remain structurally very strong. Moving to heat exchangers, which remains the largest and most stable segment, the business continues to generate consistent recurring demand. This business benefits from more than 60 years of technical expertise and our unique combination of OEM manufacturing and MRO capability. We serve both commercial and defense customers across the board install base of aircraft platforms. While we experienced some time-related impacts on fourth quarter, these do not change the long-term growth trajectory of the business, which continues to be supported by new aircraft platform and fleet convergence program. On the landing gear side, the segment continues to show growth as the aviation industry enters major MRO maintenance cycle. While supply chain constraints across the industry, particularly related to parts availability and material lead times, remains a challenge that we continue to actively manage, demand for our lending and maintenance remains strong. Our in-house machining and plating capabilities provide airline customers with significant advantage in both cost efficiency and turnaround time. Finally, our trading and leasing services remains as an important strategic component to our core MRO operation. This business helps customers manage supply chain constraints while improving fleet availability. Our APU leasing pool in particular benefits from our in-house maintenance capabilities that allow us to keep units service ready. As expected, quarterly results in this business can vary significantly depending on trading activity and parts availability, but on a full year basis, performance remains very strong and continues to support our broader customer solution offering. Another key highlight for the year was the continued strengthening of our financial position. We generated positive operational cash flow and maintained a strong cash conversion across the business. During the year, we successfully raised capital in the public market and expanded our credit facility, positioning us well to support the next phase of growth. This financial foundation provides both flexibility and discipline. Our objective is clear. To maintain the financial strength needed to pursue strategic acquisition, while continuing to invest in organic growth opportunities across the business. When I'm looking at the industry and the broader industry environment, global aviation demand continues to grow, and with it, the need for MRO services. At the same time, constraints in delivering of new aircraft are leading airlines to keep exiting or keep existing fleets in service longer, further supporting maintenance demand across the industry. That said, supply chain constraints remain one of the primary challenges affecting the MRO ecosystem, and this dynamic continues throughout 2025. We continue to see normal fluctuation in maintenance intake, as airlines sometimes extend service interval due to parts availability, while in other periods demand accelerated as deferred maintenance returned to the system. Our diversification and operational agility remains an important competitive advantage in navigating this environment, although they do not eliminate these industry-wide pressures. In fourth quarter, we started experiencing another wave of supply chain disruptions that are continuing into the first quarter of 26, especially we're seeing parts availability delays from a major supplier that are slowing certain APUs and lending you services turnaround time. Our teams are working intensively with the suppliers and the customers to address these issues, although we do not yet see a broad recovery in overall supply chain performance. All being said, underlying demand across the aviation market remains very strong, and our team executes extremely well during the year, delivering another set of record results for TAT. Strategic outlook and inorganic growth. Looking ahead, we believe 2026 will be another strong year for TAT. This outlook is supported by new long-term agreements that we already signed and additional opportunities in our pipeline. And our record backlog, along with the sustained demand for the aviation MRO services, that said, we do expect some operational challenges during the first part of the year, preliminary related to ongoing supply chain environment. But based on the increased backlog and the intake levels we are seeing over the past three months, we remain extremely confident in our overall trajectory for the business. M&A is also a clear strategic priority for us in 2026. Our balance sheet and cash position provide the financial capacity to act. Over the past year, we have further defined our acquisition strategy and developed a pipeline of opportunities that could expand our capabilities and market presence. Our focus is on accretive bolt-on acquisitions that expand our addressable market and natural adjacencies to our existing operations and deepen the value that we provide to our customers. Scale is increasingly important in the MRO sector as a larger platform enables better inventory management, greater diversification and stronger customer relationships. Overall, we remain confident in our ability to drive revenue growth and margin expansion throughout 2026 and beyond. With that, I will now turn the call over to Ehud for more details review of our financial results.

Thank you, Gerhard. And good morning, everyone. As I review the financial results, I would highlight that 2025 reflects the continued strength of our operation model. We delivered strong revenue growth, expanded margins, and generated strong cash flow while continuing to invest in the capabilities needed to support the company's next phase of growth. The results of the fourth quarter of 2025 and the full years represent another record year for T18. Fourth quarter revenue increased by 13% to $46.5 million, up from $41.1 million in the same period last year. For the full year, revenue grew more than 17%, driven by strong demand across our core businesses line, as well as continued market share gains. The growth in revenue was contributed from all four strategic product lines, with high growth in the APU landing gear and trading, offset by lower growth for the heat transfer solutions, both on the OEM and MRO side. This is fully aligned with our growth expectation for 2025. During 2025, The MRO side of business grew to a level of 71.4% of the total revenue compared to 68.6% in 2024. This is again aligned with the revenue growth that was planned for MRO and less for the OEM side of business as these are mainly dependent on the aircraft manufacturer scale of capacity. Our gross profit for the quarter increased by 23.6%. and gross margin expanded by 210 basis points to the level of 25.2% compared to 23.1% in the fourth quarter last year. This improvement reflects our continued focus on optimizing our cost structure, improving operational efficiencies, and benefiting from a favorable product and service mix. This is the third consecutive quarter that we are achieving a gross margin level above 25%, as previously communicated and was expected for the second half of 2025. During 2025, we implemented part of our cost saving and efficiencies improvement initiative. This resulted in an improved gross margin for the MRO side of business by 430 basis points, while gross margin for the OEM improved by 80 basis points. Operating income for the quarter reached to the level of 4.9 million. an increase of 20.2% year-over-year, demonstrating the operating leverage in our model as higher volumes translate into improved profitability. For the full year, operating income was $18.8 million compared to $12.5 million in 2024, representing a growth of 50.4%. During the fourth quarter of 2025, we hired several key executives that will be taking an important part in our growth strategy execution. The salaries and benefits were recorded during the end of Q3 and in full in Q4, which caused a slight increase in OPEX for this quarter. Net income for the quarter was 4.7 million compared to 3.6 million a year ago. And for the full year, net income was 16.8 million compared to 11.2 million in 2024. This is an increase of 50.6%. Please note that while tax expenses are booked, these are mainly non-cash movement between deferred tax assets and tax liabilities. The new bill allowed us to defer tax payment in the United States toward the end of 2026, while previously expected to start in Q1 of 2026. And in Israel, we have enough past losses that will carry forward until Q4 of 2026. On the net financial expenses, during June 2025, immediately after the equity round, We decided to use some of the proceeds to reduce the amount of short-term loans, and the remaining of the funds were deposited in a short-term bank deposit. However, in the second half of the year, there was a negative impact on the exchange rate between the Israeli shekel and the U.S. dollar. This had over 10% impact on the long-term loans taken from Israeli banks and institutions. Adjusted EBITDA for the quarter increased by 24% to $6.9 million, translating to an adjusted EBITDA margin of 14.8%, a notable improvement from 13.5% margin in the same period last year. For the full year, adjusted EBITDA was $25.5 million, which are 14.3% of revenue. compared to 18.6 million, which were 12.2% of revenue in 2024. The adjusted EBITDA grew by 37% and EBITDA margin improved by 210 basis points year over year. That continued to deliver operating leverage as a result of our disciplined expense management and healthy revenue growth. for the cash flow cash flow from operations in the quarter was 5.6 million positive and 50 million dollar positive for the full year compared to a negative cash flow of 5.8 million in the previous period the improvement was driven by higher profits and better working capital management Cash flow for the full year of 2025 representing a 60% operating cash flow conversion from the adjusted EBITDA, another notable achievement. Turning to the balance sheet, following the equity round in June 2025 and the strong operational cash flow management, cash went up to the level of $51.6 million and loans decreased to $11.7 million in total debt. resulting in a low debt to EBITDA ratio of 0.46. Shareholders' equity stood at 176.4 million, supporting the strong equity to asset ratio of 78%. The cash position and the overall balance of the company gives us the flexibility to finance future acquisitions and investments for a position of strength. To sum it up, We are entering 2026 with a record level of backlog, long-term agreement, and a very strong balance sheet. These factors should support the growth that we are expecting for this year and support our strategic priorities. At the same time, as mentioned, we continue to operate in an environment where external elements can create some viability in the timing of maintenance activity and revenue recognition from quarter to quarter. We are currently managing parts availability issues from several suppliers in the APU and lending year segment, as noted, which may affect the revenue recognition in the near term. However, based on the backlog and the level of current intake, We remain confident in the underlying demand for our services and the long-term growth trajectory for all four strategic product segments. Overall, TAT enters the year with a strong financial foundation, disciplined cost management, and the flexibility to continue investing in both organic growth and strategic opportunity. Now, before I conclude, I would like to note a small change to our reporting schedule beginning next quarter. Historically, TAC has released results after the Nasdaq market closed and had the earning call the following morning. Starting with our first quarter of 2026 results, we plan to release the financial reports in the morning before opening markets in the US and host a call shortly thereafter. We believe this format will make it easier for our covering analysts and our increasingly global shareholder base to engage with the result. And with that, I will return the call back to Igal.