TAT Technologies Ltd.

Let's get started. Good morning, everyone, and thank you for joining the TAT Technologies first quarter 2026 earnings conference call. This call is being recorded. My name is Matt Chesler with FNKIR, a U.S.-based investor relations firm supporting Iran Younger, TAT's head of investor relations. Joining me today are Egal Zamir, TAT's president and CEO, and Ehud Benyer, TAT's CFO. Before we begin, I would 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 also discuss certain non-GAAP 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 6K filed with the SEC. With all of that, I'd like to turn the call over to Egal.

Thank you, Matt. Good morning, everybody, and thanks for joining us. We appreciate your continuous interest in TAT. TAT Technologies entered 2026 with a robust operational foundation, and the record customer demand in the first quarter reinforced our confidence in the trajectory we are on. Demand for our services has never been stronger, and the value of our long-term agreement and backlog reached an all-time high, going to approximately $580 million at the end of Q1, reflecting new contracts win and strong customer intake in MRO. We continue to make significant progress on our organizational infrastructure and operational plans for margin expansion. M&A remains key priority. We establish a team with direct industry relationships, and operating experience required to source and execute the right transactions in this market. We are not in a rush. We are building towards the right outcomes. In parallel, during Q1, we experienced supply chain disruptions, leading to delayed completing open work orders and deliveries. As a result, our revenue slightly declined year over year, not fully utilizing our growing backlog. We expect this obstacle to be resolved in the next few months, allowing TAT the growth trajectory. I will walk you through what drove the quarter, what remains fully intact in the business, and how we are thinking about the balance of 2020. EOD will then take you to the financial details. Let me begin with the backlog, because it's the most important signal that we can give you about where the business stands today. Backlog and long-term agreements increased to $580 million as of March 31st, from $550 million at the end of 2025. This is a record for TAT and mostly related to new contract wins. When it comes to ongoing MRO demand, to give you a sense of the magnitude of the timing dynamics, we ended the quarter with approximately $15.5 million of APU and lending gears open work orders at our shops. We estimate that the material portion of this work, which was near completion but could not be released due to missing components, would have been shipped and recognized in the quarter if part has been available. Switching to the first quarter results. So turning into the quarter itself, we have a slight decline in revenue year over year. As explained, this softness reflects constraints in components availability from some key OEM partners that delay the completion and the release of units in APUs and lending operations. The APU components in question are not technically complex. They are standard commodity-level parts, but until they arrive, units cannot be released. The associated work remains under contract, volume, or shifted into future periods rather than being lost. The demand is there, the contracts are there, the capacity and workforce is there, and our confidence in a full-year revenue and EBITDA growth remains intact. Erd will walk you through the financial details in a moment, including margin performance and cash flow, both of which tell the more complete story about the health of the business. Product line commentary. Let me briefly walk you through the performance across our service line. In heat exchangers, we continue to see growing demand. Q1 of 2025 revenue reflected the huge effort to close late orders from 2024. The following quarters of 25 and 26 reflected the ongoing demand for both our OEM and MRO customers. Even against this higher base of Q125, we look into 26 and are seeing increasing orders in both OEMs and MRO markets. This business benefits from more than 60 years of OEM and MRO experience, long-term supply relationship, and diversified commercial and defense customer base. It continues to generate consistent recurring demand and remains the foundation of the platform. In the heat exchanger business, we achieved an operational milestone this quarter, delivering more than 97% of customers' orders on time. In APU, intake was at record level at this quarter. We won business and added new customers. We are seeing increased flow of newer engine platforms, and we exited the quarter with more contracted works than we entered, achieving a higher level of book-to-build than usual. Our customer relationships are strong. We continue to support and engage customers even when the final delivery is delayed. We are in an active, ongoing dialogue with our supply partners and have seen improvement in parts flow over the recent months. The business is fully ready to convert volume the moment parts will flow and we expect it to. In lending gear, component availability is a limiting factor and supply situation in this business is at an earlier stage of resolution than what we see on the APU. Once again, our market position is unchanged. Customer demand has not changed. What I can tell you is that we are not waiting for this to resolve itself. We have ongoing dialogue with our OEM partners and we have established new processes with them to increase transparency and drive towards resolution. The level of engagement and the steps being taken give us more visibility into the path forward than what we had at the beginning of the year. LendingGear is a smaller portion of the overall business, yet we will continue to press for resolution with the same urgency that we have applied from the beginning. Finally, trading and leasing deliver 29% year-over-year growth, strong results for a business with inherent variability from quarter to quarter. The timing of assets transactions don't follow a straight line, and the demand picture in this business continues to be very high. Q4 of 2025 was a record quarter for this business and our ability to complete certain engines exchanges in Q1 was limited by the same parts availability constraints affecting the MRO operations. The underlying demand picture remains strong and we expect the business to be a meaningful contribution to our consolidated results. Switching a little bit to the industry, stepping back from the quarter, what we hear from our customers and seeing our own order flow continues to point to an encouraging direction. Demand for MRO services remains strong, and the need to maintain and extend service life of existing fleet is there. That is the environment TAT operates in, and it continues to support our long-term opportunity. The supply chain dynamics that affected our first quarter is an industry-wide phenomenon. Major OEMs and operators across the aerospace ecosystem have commented publicly on similar pressure in the recent weeks. As we shared in the past, in order to overcome it, TAT maintains a meaningful strategic inventory of critical APU parts. The recent shortage, which started in Q4 of 2025, is in standard commodity-level components, which are required in all APU final assembly after the overall. While we have seen improvement in part flow over the recent months, and while part sources express their confidence in their recovery, the broader environment remains dynamic, and we are not in a position to predict the precise pace of normalization. Switching to M&As, M&A remains a key priority for TAT, and our progress on this front is meaningful. Over the past nine months, we have invested in building a team with direct industry relationships and operational experience required to source and execute transactions in this market. We brought a dedicated corporate development leadership with careers spent in aerospace. We upgraded the board with directors who bring scaled company operating backgrounds and add further connectivity into the broader aerospace ecosystem. We developed our internal systems and procedures to enable us to close M&A opportunities and integrate them into our business. That team is now actively engaged directly with potential acquisition targets, with private equity firms that own assets in our addressable market, and with a network of advisors and bankers who brings additional deal flow. As a result, our pipeline is expanded. We are evaluating opportunities, which is a notable change from where we were six months ago. Our focus continues to be on active bolt-on acquisitions that strategically fit into our platform, expand our addressable market, and deepen the value we deliver to customers. As we look ahead towards the balance of 2026, our confidence rest on three key factors. First, demand is the strongest it has been ever for TAT. Our record backlog of approximately $580 million reflects sustained engagement across all four of our service lines and the pipeline of new business continues to build. Second, our customer relationships remain fully intact and our customers have continued to work with us in partnership throughout this period. TAT itself is a stronger company than it was at the beginning of 2025, operationally, institutionally, and strategically. The investments we have made in the team, our processes, and our balance sheet position us to convert demand into growth as the supply environment normalizes. We are moving forward with conviction. Indications from our suppliers are pointing close to normalization. Based on our visibility and what we are hearing directly from our customer partners, we continue to believe that 2026 will be a year of meaningful growth in both revenue and EBITDA. The supply chain timing dynamics we navigated in Q1 does not change that view. When parts flow, we are ready. And the backlog tells you exactly what is waiting on the other side. With that, I will turn the call over to Ehud for more detailed revenue on the financial results.

Thank you, Riyad. Good morning, everyone. Good afternoon to those that are on the other side of the ocean. As I walked you through the first quarter financial details, the headline is straightforward. While the supply chain disruption affected the timing of revenue recognition during this period, we expanded gross margin year-over-year, generated positive operating cash flow, and ended the quarter with a balance sheet that continues to support both organic growth and our M&A priorities. First quarter revenue was $41.1 million compared to $42.1 million in the first quarter of 2025. As Igor described, the year-over-year decline reflected industry-wide aerospace supply chain timing, not demand. The increase in our WIP inventory and parts is a reflection of the amount of work that could be recognized at the end of the quarter. Gross profit increased by 0.8% year-over-year to $10 million. Gross margin expanded approximately 80 basis points to 24.4 compared to 23.6 in the first quarter of 2025. This margin expansion reflects the operational discipline and structural progress we have made across the businesses, including improvement in our cost structure and operating efficiencies. and continue to focus on cost management across our operations. As we move forward towards the year, we are monitoring expenses very close until revenue will start ramping up again. This is without harming our operational capabilities to ramp production when missing parts arise. Operating income for the quarter was $3 million or 7.3% of revenue compared to $4.2 million or 9.9% of revenue in the first quarter of 2025. While gross profit increased year over year, operating expenses were higher in the period. This increase reflects our planned investment in next generation R&D, the strengthening of our organizational structure and executive teams to pursue strategic M&A, strengthening the strategic sales team, and the enhancement of our finance infrastructure to support SOX compliance, ongoing regulatory demands, and expansions. Net income was $3.4 million compared to $3.8 million in the first quarter of 2025. Diluted earnings per share were $0.26 compared to $0.34 in the first quarter of 2025. Net interest income in Q1 of 2026 was $39,000, compared to net expenses of $58,000 in the parallel quarter. This is mainly due to a lower level of debt, offset by the impact of the Israeli shekel against the U.S. dollar exchange rate, which impacted some of our long-term loans. Taxes on income were $0.1 million for the three months ended March 31, 2026, compared to $0.6 million for the same period in 2025. The decrease finally reflects lower taxable income and the impact of jurisdictional mix during the period. I want to remind the audience again that while taxes expenses are booked, these are mainly accounting movements between deferred tax assets and liability. The new bill allowed us to defer tax payment in the United States to the end of 2026, while previously expected to start in Q1 of 2026. Also in Israel, we have enough carry forward losses that will take us through the end of 2026. Adjusted EBITDA was $4.9 million or 11.8% of revenue compared to $5.7 million or 13.6% of revenue in the first quarter of 2025. Moving to the cash flow, cash flow from operating activities was positive at $1.9 million in the first quarter compared to negative of $5 million in the first quarter of 2025. Turning to the balance sheet, we ended the quarter with $51.2 million in cash and $11.2 million in total debt, resulting in a debt-to-EBITDA ratio of 0.45, calculated over the last four quarters of EBITDA. Shareholder's equity stood at $180.5 million, resulting in an equity-to-balance ratio of 77.5%. Our strong financial position gives us meaningful flexibility to continue investing in organic growth opportunities and advance the M&A pipeline. To summarize, the volume deferred during the period is contracted and supported by a record backlog. Gross margin continues to expand, operating cash flow remains positive, and our balance sheet is well positioned to support our growth strategy. While supply chain constraints affected the timing of revenue recognition in the quarter, the underlying demand remains intact. And we are well positioned to realize this contracted volume as supply conditions normalized. And with that, I will return the call back to Igal.