TAT Technologies Ltd. Aktie

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 FNK IR, a U.S.-based Investor Relations firm supporting Iran Younger, TAT's Head of Investor Relations. Joining me today are Igal Zamir, TAT's President and CEO; and Ehud Ben-Yair, 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 20-F. 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 6-K filed with the SEC. With all of that, I'd like to turn the call over to Igal.

Thank you, Matt. Good morning, everybody, and thanks for joining us. We appreciate your continued interest in TAT. TAT Technologies entered 2026 with a robust operational foundation and the record customer demand in the first quarter reinforce 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, growing 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 a key priority. We established 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 2026. Ehud will then take you through 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 31 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 Landing Gears open work orders at our shops. We estimate that a 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 component availability from some key OEM partners that delayed the completion of release -- and the release of units in APUs and Landing Gear operations.

The APU components in questions 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 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 the full year revenue and EBITDA growth remains intact. Ehud will walk you through the financial details in a moment, including margin performance and cash flow, both of which tells a more complete story about the health of the business.

Product line commentary. Let me briefly walk you through the performance across our service lines. In heat exchangers, we continue to see growing demand. Q1 of 2025 revenue reflected a huge effort to close late orders from 2024. The following quarters of '25 and '26 reflected the ongoing demand for our -- for both our OEM and MRO customers. Even against this higher base of Q1 '25, we look into '26 and are seeing increasing orders in both OEMs and MRO market. This business benefits from our -- 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 order on time.

In APU, intake was at a 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 work than we entered, achieving a higher level of book-to-bill 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 at the moment parts will flow and we expect it to.

In Landing 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. Landing Gear 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 Listing delivered 29% year-over-year growth strong results for a business with inherent variability from quarter-to-quarter. The timing of asset transactions don't follow a straight line and the demand picture in this business continue 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 see in our own order flow continues to point to an encouraging direction. Demand for MRO services remained 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 '25 is in standard commodity level components, which are required in all APUs final assembly after the overhaul. While we have seen improvement in part flow over the recent months and while part sources expressed 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&A. M&A remains a key priority for TAT and our progress on this front is meaningful. Over the past 9 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 career 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 advisers and bankers who brings additional deal flow. As a result, our pipeline has expanded. We are evaluating opportunities, which is a notable change from where we were 6 months ago. Our focus continues to be on accretive 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 rests 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. Third, 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 normalize. We are moving forward with conviction and 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 review on the financial results.

Thank you, Igal. Good morning, everyone. Good afternoon to those that are on the other side of the ocean. As I walk 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 Igal 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 '25. 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 continued 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 arrive. 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 demand 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 '25. Net interest income in Q1 of 2026 were $39,000 compared to net expenses of $58,000 in the prior 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 3 months ended March 31, 2026, compared to $0.6 million for the same period in 2025. The decrease primarily 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, the 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 '26.

Also in Israel, we have enough carryforward 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 4 quarters of EBITDA. Shareholders' 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 continued 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 normalize. And with that, I will return the call back to Igal.

Thank you, Ehud. Before we move to questions, I would like to leave you with a few clear takeaways from today. Customer demand at TAT is at record level with our backlog growing to approximately $580 million, the majority of which reflects new business wins. The supply chain disruptions that affected our quarter is bounded and temporary. The deferred volume is contracted business that we expect to convert when supply conditions will allow. And TAT itself is a more capable company than what we were a year ago with the operational, institutional and strategic infrastructure to continue advancing our growth priorities, including M&A. I want to thank our employees around the world. Their professionalism, particularly in the quarter and acquired hand-on coordination with our customers and suppliers is what makes our continued progress possible. With that, I will turn over to Matt for questions.

Thank you, Igal. We're now going to open up to the Q&A session. [Operator Instructions] The first question is from Ben Klieve at Benchmark. Ben, please go ahead.

First question around the backlog. It's great to hear really a steadfast belief here that the supply chain problems are not having an impact on your backlog. And I want to lean into this. Clearly, your backlog ramped considerably in the first quarter. You had a couple of really nice wins. And I'm wondering if below those really nice wins, if there is any slippage either in the first quarter or second quarter to date from any of these customers that have been negatively impacted by the parts dynamic or perhaps customers that have had more macro challenges here around the price of jet fuel, any of the low-cost commercial providers, anything like that. So has there been any slippage out of backlog here, again, either in the first quarter or second quarter to date?

So let me address -- I'll try to address the question in several ways. First of all, maybe just to expand on what we just covered in the opening remarks. When you think -- when you look -- I mentioned earlier that we finished the quarter with $15.5 million of APUs and Landing Gear in open orders. And we believe that a material portion of it should have been released and recognized during the quarter if the parts would have been there. And also, if you look -- so that's kind of a reflection of the -- you can estimate what could have been in the quarter. We're entering the quarter and during the quarter, we were expecting Q1 to be to continue the trajectory of the growth that we had in the last few years.

So from a demand perspective, we were expecting and hoping for a very strong quarter. The second way to look at the -- and where we were at the end of the quarter is looking at the balance sheet, and I mentioned something about it. If you look at the inventory -- substantial inventory increase that we had during Q1, a big portion of this inventory increase that you see on the balance sheet relates to the open work orders, the value of the work that was done into the open work orders, another indicator for how much could have been added. As a general saying to the third question -- that I believe that you asked, as a general saying, the work is there. The demand is there, and we see the buildup of intake. We don't have -- so far, we don't see any indications. There are always exceptions here and there. But as a general saying, we don't see any impact on intake due to the environment. We actually see continuing strong momentum on intake.

Okay. That's very helpful. And then one other one for me and then I'll get back in queue is around your expectations, not necessarily for the timing of the parts, your access to the parts, but kind of the progression of getting from where you are today to when you'll be fully -- have full inventory. Are you expecting kind of a one-time event where these parts unlocks, especially on the APU side, all come in at once? Or do you think this is going to be kind of a trickling over several months or several quarters for you to get to the full inventory position that you need?

So okay. Again, I will split the answer into a few segments. First of all, let's start with APU, which is the vast majority of the opportunity that we have ahead of us in terms of catch-up. So first of all, we did a few things. While we are working very, very actively with our OEM partners to resolve the part situation, we are also extensive efforts to bring alternative solutions and to make sure that we have the parts from -- not just from the OEM agreements that we have, and it's contributing to the ramp-up. The OEM partners themselves are reporting on a substantial improvement on their side. But in the same time, they have a huge backlog, not just for TAT. We are only one of many, many customers that they have and the problems affect everybody. And therefore, I believe that the back to normal will take a couple of months. I don't expect any one go where all of a sudden next week or whatever we see all the parts in one day. It will be a process. They are optimistic that the problem -- the root cause of the problem is behind them and that they are on a recovery trajectory. We do see increase in -- a substantial increase in the last few weeks in deliveries, but it will take a few months.

The next question is going to be from Jonathan Siegmann from Stifel.

Maybe just to talk a little bit more about the parts shortage. Is there any risk that given these OEM suppliers who are having some problems delivering these parts are not -- are prioritizing their own internal use of these parts and you as a third-party partner are lower priority? Just maybe if you could address that concern, I would appreciate it.

I would say, again, I need to split the answer on the APU, there is 0 risk. There is no risk. And as we stated in the comments at the beginning, when it comes to the APU, you have the main engine components, all the -- we call it the core of the engine component, the impeller, the big parts and whatever, we have plenty of them in stock. We established a meaningful strategic inventory a year ago. So when an engine come and we need to do the work, we have all the parts in-house. This is why we have so much work orders that are very close to completion where the overhaul was done. But the challenge that we have today is on the all kinds of commodity level parts without going into too many details that you need in order to reassemble the engine after the overhaul was done.

There is no conflict between us and -- that I'm aware of between us and the OEM production. And so I don't see any risk there. On the Landing Gear, it's a different story because the Landing Gear -- the OEM itself that is producing the main Landing Gear parts is supplying to us and also supplying to their own shop. So in theory, there can be a conflict. We are working very actively with them and trying to verify that we are going to make sure that the allocation is done according to the customer needs and not just based on prioritizing the OEM versus the partners. So there is more risk there, but it's a much, much smaller portion of the problem.

And your freight customers, sometimes they can be the most sensitive to changing macro conditions. Any color on what they may be saying or thinking at current time?

I would say just as -- At least one of our largest customers, freight customer is suffering from the same OEM, from the same part issue on another -- on their needs, unrelated to what we do for them. And so we are -- it's a known problem in the industry, among the industry players and everybody is affected. So not only that we get a good collaboration and actually, our customers are part of the solution in the sense that they are helping us to put pressure to resolve the problem. But we also -- and also we work very closely with our customers to make sure that we take care of the needs. No customer will get stuck without spare units and very openly and very engaging with our customers. So it looks like it's under -- we are managing it properly, and we are on the right direction in terms of the trajectory.

Thank you. Next on to Josh Sullivan from Jones Trading, who has submitted a question. Josh is asking whether the supply chain disruptions opened up any conversation around vertical integration or mergers and acquisitions.

I think it's -- by the way, Josh, good question. I would say in general, there is a potential here, and we are looking at several ideas. But I must say that currently, there's nothing on the table or something that will mature in the next quarter or 2.

He's also asking -- so you're saying, I know your visibility points to a recovery in the latter half of the year. However, if the supply chain disruptions were to continue to linger, when does the OEM issue become an operational issue for the flying industry?

[Technical Difficulty]

I couldn't hear the question. Can you please repeat?

I think Josh was asking you to look at your crystal ball. No, he's saying, I know your visibility points to a recovery in the latter half of the year. However, if the supply chain disruption were to continue to linger longer, when does the OEM issue become more of an operational issue or an industry-wide issue for the flying ecosystem?

Just again, I'm sorry, I could barely hear the question. Let me try and address the -- what I believe was the question. We are already -- as we stated before, we are in an active recovery mode. We see more parts coming and we feel that the direction is the right direction. So a combination of what we actually...

[Technical Difficulty]

I think Igal has some connectivity issues. Let me try to answer this question. I think at the end of the -- again, I want to split the answer to two to the APU and the landing gear. On the APU, I don't see any risk like this. We are seeing it recovering, and we believe that, as we said, it will be end by the second half of the year. I don't see any -- currently, we don't see any risk to the whole industry -- continue flying or something like this. On the landing gear, it's a good question. Currently, the situation is not that...

We don't see the supply chain getting better. As I said, we're working very close with the OEM trying to solve the issue, try to find creative ways to solve them. But there is a concern. There is a concern. There are some parts of the currently we don't get any answer from -- any complete answer from the OEM, and it may evolve to maybe a larger problem, but not right now. Again, we keep monitoring the situation and understand what's going on and solve the issues.

Okay. Thank you for that. Let's move on to some questions that have been submitted by investors in advance and during the call. So thinking more broadly in light of the implications of the conflict in the Middle East, are you seeing -- Iran -- are you seeing any delays in securing new APU maintenance contracts for the 131 and 500 models?

Actually, as we already demonstrated during the quarter, we are on a very strong trajectory on securing new business, including the 500, and we published substantial wins during the first quarter, and we continue to work to expand. So the conflict by itself did not affect the ability to close more business.

Okay. Next question. Has TAT Israel experienced any increased activity as a result of the Israeli Air Force's operations during the current conflict?

So I think in general, on the military side, we see -- on one hand, we definitely see increasing demand due to the global unrest. And in parallel, some of the capabilities that we have and services that we provide are focused on the fleet that is currently is in use in the Middle East, both by Israel and the U.S. Air Force. And so I think that there is more focus on keeping the aircraft flying than taking them to our MRO cycles. So it's kind of, let's call it, a counter trend. On one hand, there is a growing demand. On the other hand, in some short-term we may experience here and there some delays. All in all, it's positive trend.

By the way, when I'm talking about delays, if an aircraft is flying in operations in the Middle East, the Air Force will try to push the scheduled maintenance until the conflict is over. So you may see less intake coming on the immediate term. And on the other hand, when you look at it more mid term and long term, the overall demand is growing and the positive impact -- the overall blended impact of these two trends is positive.

Okay. Here's a financial question. Do you still expect gross margin expansion of several percentage points over the next 12 months despite the current challenges?

I don't want to relate to the numbers or the amount of percentage, but I can say definitely that the gross margin is going to improve in 2026, given everything that we mentioned before, we are working on our operational efficiencies. We're monitoring expenses very closely this year. We have our own initiatives that we are executing. I commented on this in several earnings calls in the past. Every quarter, we are completing more and more and more cost efficiencies initiatives, and we see them in the results.

You can also see this quarter that even though the revenue was lower compared to previous quarters, we managed to keep a very high level of gross margin and even improve it compared to the previous quarter. And obviously, as revenue will pick up during the year, the more revenue growth, we see an upward trend in the gross margin and in the EBITDA margin as well.

Great. There's a question around cargo. I guess to what extent is the strait of hormuz situation affecting demand from cargo customers, if any?

So from where we see it, we see a steady demand. We didn't see any major change that we can measure in terms of more demand growing because of the need to use more air-freight than sea-freight. So we see the demand meets our expectation. Nothing that is notable that I can speak about.

So we're going to go back and take a live question. We have one that just came in from Sergey Glinyanov from Freedom Capital Markets. Sergey, please go ahead, ask your question.

You hear me?

Yes, we do.

Yes. Great. So I just would like to clarify, do you expect next quarter will be weak as well, especially in APU line? Because previously, some analysts asked about backlog, and I see that it's really strong. But timing is really -- we need to clarify the timing when your revenue will continue to grow again.

Yes. So, I'll try to compile what we discussed before into a few comments. First of all, we have lots of APUs where the work was done. We are just waiting for the last remaining parts for us that are required for assembly, so we can assemble the units and sell them. We stated that we see a part -- we see a recovery. The recovery in the parts availability is already happening. And we are forecasting that the revenue will grow. So it's not going to be a [ 0-1 ] impact, and it's -- we are not promising a full recovery, but we are on a positive recovery trend. And we have plenty of work. Actually, we have a huge amount of work in the company. And while when the parts arrive, these units, a few days later, are the engines are assembled and shipped to the customer. So we expect a recovery, but the recovery is gradual over the coming few months.

Yes. And maybe you can put some color on what parts particularly we were exposed to supply chain. So you mentioned, Igal, that some commodity level parts were exposed, but maybe you can name some particular parts.

I prefer to keep it at this level, not to expose our OEM and to be too specific. But if you think about it, when you think about an engine, you have the main engine component where we don't have any issue and we have the general thing, we don't have any issue, and we have substantial amounts of inventory. So you can do all the work on the components. You take the engine, you break it into all the pieces, then you have to overhaul and repair pieces that are not or replace the main parts if they are not functioning well. And when all the work is done, you need to assemble the engine. For the final assembly, there is a long list of small parts that are more commodity parts that are required, and this is where the challenge is.

The next question is from Alexandra Mandery from Truist. Please go ahead.

Can you guys hear me?

Yes, we can.

Yes. Good morning, Alexandra.

So that's great to hear that you're in the process of discussing solutions to the supply chain issues with the OEMs. Can you provide additional color on some potential solutions with the OEM not ease the issue? And I guess the second question kind of tied to that is, do you have any interest in acquisitions that could include PMA capabilities for the commodity level parts that could ease the supply chain?

So when it comes -- as a general thing, without going to specifics, theoretical solutions for OEM parts can be PMA or can be sourcing the same parts from other sources in the market that happen to keep them in inventory. And in parallel to overcoming the problem with the OEM and in collaboration with the OEMs as we find these alternative solutions on the short-term, we are utilizing them. And in terms of the second question, it really depends on your question about potentially acquiring PMA capabilities. It depends on the type of product and the relationship or the contracts that we have with our existing OEMs. In some cases, we can do it in some cases not. But as a general thing, as we think about expanding our MRO capabilities and adding more capabilities that we don't have today with PMA. And PMA facilities is definitely something that we will be looking at.

So I'd like to ask a question for Ehud that was submitted from through the chat function around M&A. Ehud, can you talk a little bit about the M&A funnel, what you're prioritizing and how the current environment might factor into that thinking?

Yes, sure. Thank you for the question. So as Igal mentioned at the beginning of his speech, we first -- in the last couple of months, we built the infrastructure. So we hired the people, we set the routine. We set the connection, the network. We defined the strategy. And then in the last couple of months, we went to the market started getting opportunities and started sourcing opportunities by ourself. The strategy in general, again, it was communicated in the past. I'll just repeat it. We're looking for companies, either an OEM or MRO, something close to our areas that we're working right now. And the main issue is to provide additional benefit or additional added value to our customers. We raised the money several months ago. The money that was raised was mainly to give us some kind of a first cushion to start being active in the M&A market as we see it right now. There are several interesting opportunities. And I want to indicate to everybody that we are committed to be very, very disciplined.

So on one hand, we want to make our first acquisition, and we promised ourselves and promised everybody else that we're going to do at least one deal this year. But on the other, we're not in a rush. We will be very disciplined. We'll find the right target in the right price that fits our strategy and then that will be very swift and very quick to close a deal. There is another thing which is very interesting in the last 2 months, I would say, is the multiples in the industry. So in the previous quarter, we saw multiples for the aviation industry climbing up very fast. And then when the oil crisis started and the turbulence in the market started, we saw multiples for our type of companies going down. It creates a certain dynamic also in the M&A area. And it's very interesting for us to see where it's going to land.

But the one thing I can say is that in any case, we will -- any company that we will acquire will be at a lower multiple than the multiple that we are trading right now. To summarize, there are a few opportunities which are interesting right now. We're looking at them. But again, as I said, we are not promising anything. We're -- but the only thing I'm promising is to be very strategic and very disciplined on it.

At this time, Igal, I'd like to turn the call back over to you for some closing remarks. Igal, if you can hear us...

Yes. Thank you, Matt. So thank you all for joining us today and for your continued engagement with TAT. The first quarter highlights both the strength of the customer demand of our services and the impact of an industry-wide supply chain dynamics that we expect to resolve over time. Beneath that timing dynamic, we -- the underlying business is operating well. Demand is at record level. Our backlog continues to grow. Gross margin is expanding and our balance sheet supports strategic priorities we are pursuing, including M&A. We look forward to updating you on our progress through the balance of 2026. Thank you again for your time today and for your continued confidence in TAT.

Thank you, everyone, for joining us today. You may now disconnect your lines.

Thank you very much.

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 Chesler with FNK IR, a U.S.-based Investor Relations firm, supporting Iron Younger, TAT's Internal Head of Investor Relations. Joining me today are Igal Zamir, TAT's President and CEO; and Ehud Ben-Yair, 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 [indiscernible] 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 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 -- earlier issued yesterday and in our Form 6-K filed with the SEC.

With that, I'd like to turn the call over to Igal.

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 TET Technologies. We delivered record revenue, record profitability and significant growth in the value of our long-term agreements. We're especially pleased that we accomplished this performance unmissed the backdrop of industry challenges, including tariff 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 into 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 multiproduct aviation platform, and our performance continues to outpace the broader 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 wealth. -- 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. profitability during the quarter was affected by ongoing supply and volatility, particularly within our APU and lending gear segments yet, it was still a record for TAT.

Importantly, backlog and long-term agreements continue strengthen in 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 continuous -- continuing supply chain challenges in Q1, overall, we remain very optimistic about the outlook for 2026. In terms of the -- 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 remained structurally very strong -- moving to it Exchanger, which remains the largest and most stable segment. The business continued to generate consistent recurring demand. this business benefits for 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 broad installed base of aircraft platforms. While we experienced some timing-related impact 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 lending year side, the segment continues to show growth. 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 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 put in particular, benefits from our in-house maintenance capabilities that allow us to keep unit 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 or 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 1 of the primary challenges affecting the MRO ecosystem. And this dynamic continues throughout 2025.

We continue to see normal fluctuation in maintenance intake as airline sometimes extend service interval due to parts availability, while in other periods, demand accelerated as a deferred maintenance return to the system. Our diversification and operational agility remains important competitive advantage in navigating this environment, although they do not eliminate this 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 slowing certain APUs and lending gear services, turnaround time. Our teams are working intensively with the suppliers and 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 teams execute 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 operation 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. based on the increase -- but based on the increased backlog and the intake levels we are seeing over the past 3 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 capability 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 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 a more detailed review of our financial results.

Thank you, Igal, and good morning, everyone. As I review the financial results, I would highlight that 2025 reflects the continued strength of our operational 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 year represent another record year for TAT. Fourth quarter revenue increased by 13% and 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 4 strategic product lines with higher 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%. And 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 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 noncash movement between deferred tax assets and tax liabilities.

The new bill allowed us to defer tax payment in the United States towards 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 deposits; 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 a 10% impact on the long-term loans taken from Israeli Bank's institutions.

Adjusted EBITDA for the quarter increased by 24% to $6.9 million, translating to an adjusted EBITDA margin of 14.8% and 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 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 were entering -- 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 landing gear segment, as noted, which may affect 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 4 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. And now before I conclude, I would like to note a small change to our reporting schedule beginning next quarter. Historically, that has released results after the NASDAQ market close and had the earnings 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 U.S. and host the 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.

Thank you, Ehud. And closing 2025 was a landmark year for 2018. It marked our third year, consecutive year of record results with improvement across every key metric. -- including revenue, margin, backlog value of long-term agreement and profitability. And as I would mention as well as the cash flow and the strengthening the balance sheet. We entered 2026 in the strongest financial and operational position in the company history. I would like to thank our employees around the world. Their dedication and professionalism are what makes these achievements possible. This performance reflects the resilience and commitment of our employees across the organization to success.

I'd like to open the call for questions.

Matt?

Thank you, Yigal. So we're now going to open up the call to the Q&A session. From Zoom, there are 2 ways where you can participate. The first is to use the razor hand icon, which is at the bottom of the screen. -- clicking this will alert us that you want to be called out to ask a live question and then you'll be placed into queue when called upon. Just note, you're going to be on mute until you're called upon -- the second way to participate in Q&A is to use the Q&A widget, which will allow you to type in and text the questioning. We'll then select questions from there as well. But just note, if we do run into a time constraint, someone from the IR team will get back to you. If your question is not asked on the call.

With that, we'll now begin and pause for a moment to begin the queue. The first question is going to be from Ben Cle from Benchmark.

So first question here is regarding the dynamic you noted throughout the prepared remarks on the supply chain. And I'm curious about that in the context of the backlog increase, particularly the -- it looks like cash order increase that came in year-over-year. Can you really just talk about that dynamic? Was that backlog increase largely a function of kind of deferred revenue that wasn't realized from the supply chain disruptions? Or was there some notable contract -- long-term contract wins that were in there that drove that backlog number?

Yes. So the vast majority of the increase that we've seen in Q4 comes from a new contract in long-term agreements. And we -- as a general saying the backlog or the intake, what we call of MRO work during the fourth quarter, as expected, is softening. If you recall, I mentioned it several times in the last 4, 5 quarters. We did see a huge increase in intake towards the -- really at the end of the year going into Q1. So those of you who were in our facility in Greensboro. So the amount of engines that we have, it's just getting just it's increasing every day that goes by, but this is mostly in Q1 of this year.

So going back to your question and the vast majority of the increase comes from new contracts that were signed. and OEM POs that we received for later this year. And a small portion that started showing up at the end of the year is only a small portion, if I may say, is the backlog of...

Okay. That's helpful. And then for my follow-up question, let me get back in queue is related to this. And you noted that those -- that the increase in the facility here in early February was pretty substantial. And so I'm wondering about the turnaround time for these orders that came in late in '25 in the context of the supply chain dynamic. Are you seeing a significant extension here of the turnaround time and just kind of creating a log jam in those facilities or -- are you able to kind of manage the turnaround time in the context of the supply chain disruptions?

So in the I give you a slightly longer answer here because during 2025, I was asked several times about my view of supply chain, and I was mentioning that while the disruption is very much in place. we see improvement, and we don't know -- we still don't see the right at the end of the tunnel, but we did notice constant improvement. In the last quarter of last year, it completely reversed. And all of a sudden, we are facing challenges, again, especially in APUs and lending gear and dramatically extended lead times with no advanced warning or just lack of supply and whatever. You need to remember that when it comes to an engine, there are hundreds of different parts that we need to repair or replace engine.

Olitex is 1 boat or 1 seal or 1 school that we need to replace, and we cannot send the engine. So potentially, theoretically, the supply chain challenges can definitely impact turnaround time.

Thank you, Ben. The next question is from Jonathan Sigman at Stifel.

Congratulations on the strong end of the year. I was hoping you might be able to comment on what impact, if any, you are expecting to be seeing from your customers absorbing some higher oil prices and the potential for an extended conflict in the Mid East. -- any hesitancy on MRO activity? And is there a duration of this conflict that you think could materialize some risks of some interruption in the strong cycle?

So far, I say it in the following way, -- we have -- if we look at Q1 and the intake in Q1 and so far and how it's going, we don't see any impact on the opposite. We see a very strong intake of work coming to our shops across all business lines. Relating to your second part of the question, I really don't know how to answer it. It's -- I feel like it's about my paygrade geopolitical environment and what may happen and how long -- but so far, we don't see any impact.

That's great. And your manufacturing in Israel. -- just I hope families and everything are safe. But just any comment on continuing to operate in this environment would be helpful.

We are extremely -- I would say we are extremely proud in our Israeli team. We never shut down the facility, continuing with major, major challenges, as you can only imagine, continuing to work nonstop and delivering solid results despite of everything that is going on over there. So it looks really solid.

The next question here is going to be Josh Sullivan at Jones Trading.

Can you just comment on maybe what the bid environment looks like this year for APU customer engagements versus last year? What does that demand cyclically look like?

Are you asking about the bid environment?

Yes, as customers look at their APU needs this year versus last year. What are you guys looking at as far as bid engagement this year versus last year?

I don't think that -- I'm looking at it differently from my experience, and I may be wrong, but airlines have contracts for each type of component that they have in their fleet. And they typically -- and the vast majority of the cases, they don't open a contract in the middle of the term. So there is almost 0 calendar impact as far as I see on their decision. So they are under contract. They get to the -- to the end of the contract a few months before they open an RFP. So the RFPs are coming on a steady pace and even -- I would say even when there are challenges, it's rarely that an airline will decide to break a contract in -- actually, I don't remember ever seeing it breaking a contract at the middle of the contract and opening a new bid.

Now from time to time, if you have -- if an airline has a customer that is struggling or a vendor that is struggling, they may choose to send several units without a contract and that's something that we see from time to time, meaning airlines that are not under contract with TAT and they're sending us APUs or gears or thermal components for repairs without the contract. Obviously, this is more related to the existing vendor challenges they have. But even in this case, even when they have challenges, they don't tend to open RFPs. I think that they have -- if I'm trying to put myself in their shoes, they have much higher priorities on other systems and components. -- on the mechanical systems and APUs that will -- they typically don't change.

So all in all, it's a steady state. It's a steady flow of new RFPs that are opening. -- with opportunities when I'm looking at this year opportunity leads to airlines that are probably going to open RFPs in the next few months and existing RFPs. We just announced a week ago, we announced a very nice win of an RFP. So it's continuing, give or take, in the same pace.

Okay. Got it. And then just supply chain constraints impacting margin, you guys are still at records. Can you just help us frame what margins are going to look like once the constraints are resolved? What are we planning for with TAT on the margin side once we get past these constraints.

I would say, 4 years, I was talking about the 25 and 15 , 25 crores and 15 EBITDA. And now that we are there for a couple of quarters in the range, we definitely see more opportunities. Some of them for supply chain, some of them is continuing improvement of efficiencies as the business scales. But definitely, I would say a few points without committing to anything, we believe that we can be -- what I consider to be -- if you look at companies which I consider to be best-in-class really the top performing companies in the industry in our line of business, you see EBITDA is in the range of 20%, a little bit more. That's where we aspire to be.

It's not a forecast, and it's -- I'm not providing time line, but we definitely aspire to be there. And I think that we have a road nestor how to get there. Supply chain challenges is a key component. We need to remember, again, hundreds of parts per APUs and dozens of parts or landing gear, if your contractual vendor is struggling, and you have to buy apart in the market to satisfy the customer needs, you typically pay way more than your contractual price. So it has a significant impact on profitability. And the second factor that has -- that affects profitability is the lack of teardowns.

And the MRO industry on the APUs, especially a big component in managing profit is the ability to buy all the engines from aircraft turn down and break them into PCs and then repair the pieces and use the pieces. Typically, in most cases, the sum of the pieces the value of the business is much higher than buying than the engine itself. So you save a lot of money by buying as removed engines from an old aircraft and overall in the parts. The challenge -- the challenge over the last 2 years have been that there are barely any engines for sale. Very little tear down comparing to the activity the industry used to see before that.

So that's another factor. As the industry continues to stabilize, and airlines want to renew their fleets. I believe that we will see a growing activity of all the aircraft retirement, which turn -- which will increase the availability of engines in the market and then we will be able to use more best remove parts after overall which definitely helps to further improve the margin.

The next question is from Sergey Gunjan from Freedom Capital Markets.

Yes, good day, gentlemen. So that our or staying safe in this time of uncertainty. And my question is about, do you see increase in demand on your defense products and services. Are you able to catch some orders for new platforms for them.

Serge, I'm not sure that I understood. Are you asking about the impact of the situation -- global situation on our defense orders?

Partially yes, but I'm interested in your ability to cash some new orders or your defense programs to supply defense products and services.

So we definitely in the I'll split it into 2 sections. First of all, let's remember that defense is a small portion of TAT overall revenue. So that's 1 thing that we have to bear in mind. On the MRO side, we definitely see -- actually on both OEM and MRO side, defense sector, we definitely see a substantial increase. both on the MRO side, as air forces are trying to keep their fleet in operational condition. And on the new orders that we are receiving to support the systems that -- where we are the component supplier to the system. So we see a very nice increase. We need to remember, though, that it's not -- it's still a small portion of the overall portfolio of TAT. Most of our business is OEM, is commercial, I'm sorry.

Yes. Got it. And any thoughts about M&A, whatever is are you interested in currently.

On the M&A activity, we -- as we mentioned in the last quarter, we started -- we launched the effort early fourth quarter. We hired a VP of Corporate Development for the company. We developed a strategy, and we are actively looking for -- we are in active process looking for opportunities and for deals. Obviously, we go about it with lots of discipline and wanting to make sure that we will add value and the deals that we write for 28 and whatever, but very actively working on it. That's what I can say at this point. Obviously, we will share more as we make more progress.

This time, let's move to a question that was submitted to us directly. And it's from Michael Ciarmoli from Truist Securities. And Mike asks -- can you give us an update on your expectations for the 131 APU for 2026 and beyond. Should we see -- should we expect to see a growth inflection at some point this year as you start to increase your penetration and grow share with this product line.

Yes. So I think first of all, the answer is yes, we are expecting to see growth from the $131 million. I think that it was discussed. Those of you who we've visited our facility in Greensboro for the Investor Day, we spoke about it back then. When we look across the businesses on the 200 engine, we are doing extremely well. We are gaining more and more market share. I feel that we are in a great position to continue and grow the market share this year. And the [indiscernible] what we made a huge stride forward last year with contracts with long-term agreements, with engines and whatever. Over there, we need to remember that there are -- it was we have less competitors, if you will, and comparing to the 131.

And -- and I think that we are in a very strong position in terms of our performance and whatever, going to the -- I'm sorry, on the 500. Going into the 131 , we have 2 things that we are doing this year. First of all, in terms of priorities and as our COO mentioned during the Greensboro visit, this year, we make -- the operational focus is to make us way more efficient and profitable on the 131 to become more competitive in the market. That's 1 key effort for this year. And in parallel, we are definitely looking at nice list of opportunities and leads that we are going to bid on. So we have a new -- we extended our sales team at the end of last year. We hired a new VP of MRO business to run our entire MRO business.

And now the team is really focusing on expanding the outage behind the large American airliners expanding across the globe into midsized airlines and smaller airlines and chasing these opportunities. So I think it's just a matter of time. We are expecting to see deals come.

There are several additional questions that are overlapping. So what I'm going to do is I'm going to summarize them and it goes like this. did Q4 sales compared to Q3 surprised you? Do they indicate anything for the coming quarters? And what's your basis for optimism regarding 2026?

So I don't know who have you -- any of you that participate in third quarter, third quarter call of 2024. This was before fourth quarter of '24. And I took the time and energy to explain back then that fourth quarter is traditionally softened for TAT. We see it across the board. -- and kind of preparing the stage for fourth quarter of 24, that will be soft. And eventually, it wasn't soft at all. It was a very strong quarter. But what -- the only difference is that back then, we still had plenty of back orders, meaning we had work that we accumulated during the years of Cove than whatever that we will -- that add us as a buffer.

From a financial standpoint, it helped us as a buffer in quarters that are softened. So up until the end of '24, the results of the MRO business segment of TAT were less related to intake on a specific quarter, and we were less exposed to the quarter fluctuation. And we -- because we had all this spare work from the past that every time that the intake was slightly lower, we could use as a buffer -- having said this, needless to say that having a buffer of work is not a good thing because our key concern and my key objective is to provide good great service to our customers. I think that this is really differentiating us from competition.

Bottom line is that starting Q1, and we reported it, we completely caught up. We have 0 -- almost 0 back orders on MRO. So basically, what we have every month, every quarter to sell is what we get during the quarter, and obviously, it will be more seasonal. So bottom line, there was no surprise in Q4, we expected cargo carriers in Q4 tend to switch only to emergency maintenance. They prefer to keep all their focus on flying during the holiday season. And in our line of businesses, what we see, typically, especially in the thermal components during the summer, we see a huge increase in intake, airlines going into the summer, into the hot season are trying to make sure that they have very -- that the entire spare pool of heat exchangers is an operational condition because this is where they see more events. And so they overflooded their pool. And then in fourth quarter, they are reducing the size of the pool. -- in order to save money and to improve their annual performance on maintenance expenses.

We see it every year since 18, nothing surprised going into fourth quarter this year. We're just knowing it, we placed way more focus on trading and making sure that we will have assets available for exchanges on the trading side and to compensate for the expected softness on the on the MRO, and it worked very well for us. I'm happy to see that it's a countercycle so it worked well. Going into this year, and it started in the last 10, 14 days of December, we see -- and again, we see it from time to time, a major increase in the amount of the amount of work that we received across all business lines. I think on the APU side, we never saw the amount of engines when we visited the Greensboro or they were at the time that we were at Greensboro, there were close to 100 engines in the shop. It's phenomenal numbers, very strong going into this year.

Okay. Thank you for that, Ygal. I'm going to now turn the call back over to you for concluding remarks.

Again, all I can do is just repeat what we just said. We are very pleased with the results. Another amazing year for TAT, very strong. We started by increasing -- if you think about the last 2 years' messages that I've been conveying, we -- we started with just recovery from Covid. And then it was about good growth. And then we added the layer of -- we added a layer of improving profitability, and we can see the results now. Then we were challenged more than a year ago about our cash flow, and we explained that cash flow is going to come as we stabilize the business, and now we see the results and the drastic improvement in cash flow.

We were asked about inventory. And if you look at our inventory, it's stable and actually going down, So we spoke about M&A and strengthening the organization. And all of this was -- all of this happen. So if you think about if we go back 1.5 years and the plans that we shared and focus, there is a full alignment and I'm very happy to see that we achieved all of this. We are going into '26 with a very strong position and expecting to see the growth continuing in 2026 both organically and inorganically, the value of the backlog and the long-term agreement is really encouraging. The pipeline of opportunities that we have ahead of us is just adding to it.

So we remain optimistic and looking forward to continue developing the organization. With that, thank you again for joining us today. We appreciate your continued confidence in us, and happy to continue the discussion offline.

Thank you, everyone, for joining us today. You might now disconnect your lines.

[Audio Gap] A U.S. based Investor Relations firm supporting Eran Yunger, TAT's Internal Head of Investor Relations.

Hosting today's call is Igal Zamir, TAT's President and CEO; and Ehud Ben-Yair, TAT's 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 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's actual results to differ materially from those indicated in these forward-looking statements, please see our annual report on Form 20-F 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 financial measures. Please see this morning's Form 6-K, our earnings release and the Investors section of our website 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 used by other companies. And now with all that, I'd like to turn the call over to Igal.

Good morning, everyone, and thank you for joining us for the TAT Technologies Third Quarter Earnings Call. I appreciate your interest and continued support as we review our performance and discuss our strategic direction moving forward.

TAT continues to deliver organic growth that exceeds the broader MRO driven by intentional diversification and strategic positioning serving in-demand and often underserved areas of the commercial aviation industry. We delivered another solid quarter in Q3, highlighted by double-digit revenue growth, record EBITDA margin and increased cash generation. These results reflect disciplined execution, strong demand across our core business lines and importantly, the operational leverage we have worked hard to build into our business model.

Incremental revenues is now flowing through the bottom line in a more meaningful way, representing a significant accomplishment and foundation upon which we can continue to build.

Our consistent growth and expanding profitability demonstrate that our model is performing as intended, efficient, diversified and designed to capture value across multiple segments of the aviation market.

The broader aviation market continues to benefit from a constructive operating environment. Fleet utilization remains high, aircraft retirements are occurring at a lower pace than past cycles and OEM deliveries constraints are extending the service life of existing aircraft.

Together, these dynamics are driving sustained demand of maintenance, repairs and overall activities as well as components, parts, distribution and leasing. This backdrop reinforced the importance of our diversified MRO platform and flexibility -- the flexibility that we provide to both commercial and cargo operators.

As I stated in previous calls, normal quarterly fluctuations are expected in MRO industry, especially since the substantial portion of our MRO activity involve discretionary maintenance.

Airlines tend to shift work between months and quarters based on budget cycles, expected flight loads and other operational considerations.

External factors occasionally influence intake timing as well, particularly in defense-related work, though these factors typically affect timing rather than underlying demand.

For these reasons, we believe in a multi-quarter year-over-year view as best captured the strength and the momentum of our business. We believe that this perspective, supported by the year-to-date and trailing 12 months trend provide a clearer picture of the consistency of our growth, margin expansion and cash generation.

Over the past several years, we've added capabilities, strengthened operation and diversified revenue stream. These strategic initiatives has positioned TAT to sustain performance and long-term value creation. In particular, we have expanded into several underserved MRO markets, adding in-demand capabilities.

And looking ahead, potential inorganic growth through the acquisitions of accretive bolt-on capabilities will further expand this proven foundation. With an increasingly stronger balance sheet and the leadership bench in place, we are sharpening our focus on identifying strategic opportunities to accelerate our existing growth strategy. We have recently added experienced corporate development executives to help us evaluate strategic M&A activities, and we are continuing to broaden our governance structure.

At last week's Annual and Special General Meeting, shareholders elected 3 new independent directors to the company, Sagit Manor, Eitan Oppenheim and Amir Harel, each bringing deep financial and corporate development experience from leading global companies. These appointments enhance our governance and leadership capabilities as we position TAT for its next phase of growth.

With this context, I'll turn it over to our CFO, Ehud Ben-Yair, to talk -- to take us through the financial results in more details.

Thank you, Igal, and good morning, everyone. I will review the key financial results, balance sheet highlights and cash flow performance for the third quarter and for the first 9 months of 2025.

Third quarter revenue increased by 14% to $46.2 million, up from $40.5 million in the same period last year.

For the first 9 months of the year, revenue was up more than 18%. This growth was fueled by strong demand across our core businesses line, along with market share gains.

Even while delivering another quarter of double-digit revenue growth, we essentially maintained our backlog and LTA value at $520 million -- this robust backlog validates our belief in durable customer demand and reinforce our business strategy of expanding our addressable market by adding new capabilities.

From the beginning of the year, the backlog grew by close to $100 million, representing a huge increase compared to the increase in the revenue, which is representing a strong signal to our capabilities to further grow our revenue line.

Gross profit increased by 37%, and our gross margin expanded by 410 bps to 25.1% compared to 21% in the third quarter last year. This improvement reflects our ongoing effort to optimize cost structure, improve operational efficiencies and enhance product mix.

Operating income reached to $5.2 million, up by 52.6% year-over-year, demonstrating the leverage in our model as volume growth translated to profitability.

Our net income for the quarter was $4.8 million compared to $2.9 million a year ago.

Taxes on income for the quarter were $800,000 versus minimal amount in the same period last year.

The new U.S. tax legislation enacted under the One Big Beautiful Bill Act had only a modest effect on our results, while changes such as the restoration of 100% bonus depreciation and updates to the R&D expenses alerted certain deferred taxes positions.

The overall impact of our effective tax was not significant. However, the main benefit of implementing the new Act is an increase in the carryforward losses that will enable us to deduct them through the first 3 quarters of 2026, preventing us from paying any taxes in the U.S. for additional 4 quarters.

While prior to the new act, we were supposed to start paying taxes by the end of this year, by the end of 2025.

Our net financial expenses are close to 0 this quarter, mainly due to a favorable exchange rate differences between the Israeli shekel and the U.S. dollar, which were offset by the ongoing interest on our long-term loans.

And finally, adjusted EBITDA increased by 34% to $6.8 million, translating to an adjusted EBITDA margin of 14.6% a record adjusted EBITDA margin and a notable improvement from 12.4% margin in the same period last year. That continues to deliver operating leverage as a result of our disciplined expense management.

Moving to the cash flow. Cash flow from operation in the quarter was $7.5 million, driven by improved profitability and working capital efficiency and disciplined cost management.

For the first 9 months, cash flow from operation was $9.5 million, representing an EBITDA cash conversion of 51%.

Turning into the balance sheet. We ended the quarter with $47.1 million in cash and $12.1 million in total debt, resulting in a low debt-to-EBITDA ratio of 0.5x.

Shareholders' equity stood at $170.7 million, supporting a strong equity-to-asset ratio of 76%.

I'm going now to discuss a little bit about the results by the key product segments. In our APU businesses, after a modest sequential decline from Q1 to Q2, we saw a surge in intake in the third quarter with revenue increased by 39% year-over-year and 27% on a sequential basis.

On a year-to-date basis, APU revenue is up by 26% from last year, aligned with our expectation and market penetration plan. Heat exchanger revenue increased by 6% between Q3 '25 and Q3 of 2024 -- on a year-to-date basis, revenue grew by 14%. The increase in OEM is very stable and aligned with the industry growth, while MRO growth was a little bit slow in the last 2 quarters, but expected to increase in the coming following quarters.

In the landing gear area, revenue more than doubled year-over-year and nearly doubled on a sequential basis, reflecting a surge in intake and operational ramp-up, validating our strategy of supporting this underserved market. As communicated in the past, the E170 cycles started, and we are well positioned with contracts that needs to be served in the next 3 years.

And last, trading and Leasing. After a particularly strong second quarter, we're down both sequentially and year-over-year basis, reflecting normal quarterly volatility as we explained in the previous earnings call. On a year-to-date basis, trading and leasing revenue is up by 17%.

In summary, TAT delivered another period of solid growth and improving profitability, supported by disciplined expense management and strong cash conversion.

Our balance sheet remains a strategic asset, providing flexibility to invest in both organic and inorganic growth opportunity.

And by this, I'm returning the call back to our CEO, Mr. Zamir.

Thank you, Ehud. The broader aviation market continues to experience viability, but our diversification helped offset these dynamics. While we are not immune [Audio Gap] is our agility. We have built the ability to adjust capabilities and capacity resources in real time, ensuring that we meet customer needs and sustain operational efficiency even in a changing environment. That adaptability remains one of our competitive advantages.

We plan to leverage our strong balance sheet to pursue acquisitions that expand our addressable market, deepen customer relationship and natural adjacencies to our platforms.

Over the past 2 years, we significantly increased our long-term backlog. I expect this overall trend to continue as customers seek nimble partners to support their maintenance needs.

RFPs activity has its own cadence with quarter-to-quarter volatility, much like our intake volume. But the overall trend is encouraging, and I continue to believe that we are well positioned to capture more market share.

In summary, TAT continues to deliver performance that exceeds the industry and our operational discipline is driving greater earning power.

Supply chain dynamic continue to require active management, and we have made significant progress in relationship to our inventory levels, helping to increase our cash generation capabilities, and I remain optimistic about the years ahead.

Before opening the call for questions, I'd like to thank our employees for their professionalism and hard work. Their commitment continues to set the standard for the industry and sorry, and underpins everything we've achieved.

I also like to welcome our new independent directors. Their additional reflect our broader efforts to strengthen and diversify our Board as we prepare for the next phase of our growth.

Over time, we expect to further expand the Board with additional U.S.-based and industry-oriented expertise to complement our strategy. I would now like to open the call for questions. Matt?

Matt, you are on mute?

Thank you. Thank you for telling me about that. And thank you, Igal, for those remarks. As you know, we're now going to open up to the Q&A session. We're going to be taking live questions as well as submitted questions as I know a number of you have been submitting them already. [Operator Instructions] Please go ahead and raise your hands.

Jonathan Siegmann, would you like to raise your hand or would you like me to read your question? I'll go ahead and read Jonathan Siegmann's question from Stifel.

Congrats on the strong quarter, strong results and strong cash. Last quarter, you explained how TATT was able to make use of the tariff-driven slowdown in MRO intake activity and switched to repair APU.

Can you talk about how TAT was able to flex your operating platform to manage this quarter's change in demand. We were particularly surprised by the more than doubling in landing gear. How should we think about TAT's revenue capacity for landing gear MRO activity?

I think that I would like to answer this question in a more broader perspective. As I stated every quarter, I remember starting to make the same statement since Q4 of last year and being very consistent about it. I don't know that we can look at TAT on the MRO portion of TAT business on a quarter-to-quarter basis. There are many, many variables and things are changing based on the factors that I stated earlier when I -- in my opening remarks. I don't think that we need to look at it year-over-year.

The lending gear was -- the lending year increase was expected. We stated it in previous calls. We are getting into a new cycle of lending gear overall with expectation to substantial growth in revenue going into the coming few years. Nothing is new here. We saw it coming and it came. There may still be fluctuations between quarter, but the overall trend is very strong. And going back to the flexibility and how to adjust, and I think that I truly think that this is our biggest advantage as a player that is not a huge player like many of our competitors. It's our ability to shift focus and to shift employees and manpower from one area to the other as needed. There is fluctuation.

And the question is what do you do when the intake is surprising you comparing to the plan, which happens quite often. And we became pretty good in diverting a workforce and making sure that we adjust fast and that we don't just accept things as they are.

Last quarter, we've been asked about the APUs and what happened for those of you who attended, how come that last quarter was strong. And I said the same thing. I have no concerns whatsoever about the APU intake, and we see this quarter with a substantial increase in APU. So I think that when we look year-over-year and the growth in all the segments, it's very promising. It's encouraging, and we see a continuing trend moving forward, especially when we look at the backlog. There's another submitted question.

This one is from Ben Klieve with Benchmark.

Congratulations on another outstanding quarter. You mentioned your increased interest in looking at underserved MRO opportunities. I understand that you cannot get specific about what these opportunities are, but can you please discuss the characteristics of these opportunities and discuss why you think they've been underserved historically?

So I think that the industry is in overall, especially over the last few years, is going through a post-COVID crisis. And part shortages and big players that are struggling and ramping up and many -- as an outcome, there is a -- it represents a big opportunities for fast companies, fast-moving companies, I would say, more flexible that can get ready and demonstrate that they have the ability to adjust to the situation and provide great service.

One of the things that we are really proud of as a company in the last 2 years is the dramatic improvement that we have made comparing to many of our competitors in our on-time delivery, availability of parts. We made major investments in inventory to make sure that we will have the right parts on time.

And we are performing well as an outcome and the new capabilities that we added on the APU side when the market is struggling and when airlines around the world are suffering from lack of capacity and you have the capacity and you are ready and you can demonstrate performance, you gain momentum.

When it comes to the acquisition, just the M&A activity, we are not just looking -- just to be clear, and I would maybe elaborate on this for 2 minutes. We are not -- we are looking in several verticals and not necessarily just on the MRO, but also on the OEM side.

When it comes to MRO, though, we are looking to add value to our customers. I think that what we hear from airlines around the world is that one of the challenges that they are facing is with a relatively small supply chain management team, they need to manage hundreds and hundreds of vendors around the world. And everybody is looking to consolidate work and to grow to work with a larger vendor that can support them across more product lines. So our M&A strategy when it comes to MRO will be to look for companies that can add high-quality, meaningful MRO services that we can add to our portfolio and be more meaningful to our customers kind of a general answer to the question.

Having said this, as I said before, we are also looking for acquisitions on the OEM side to expand our thermal system capabilities, expand into new segments of thermal systems where we are not active today and become a more meaningful player in the thermal system world.

I'm going to summarize a question around backlog that I received from a couple of investors. Thank you, Tal, and thank you, Yuval, for submitting them. Essentially, it's -- that the backlog declined by a few million sequentially from last quarter. Can you comment on that?

Yes. I almost -- I don't want to -- basically, it's a nonissue. I think that if you look year-to-date, we are way above where we started the year. We showed a huge growth. We cannot -- you need to remember that we publish wins and add them to the backlog and LTA value only when we sign them. And we cannot -- there are several factors. We cannot control when the airlines are opening the RFPs. We cannot control when they determine who is the winning bidder. And in many cases, even after we win, we cannot control when our legal team and the airline legal team will eventually sign the contract so we can publish.

So as I stated before, we are enjoying a very strong opportunity pipeline larger than ever in the past. And we will keep on announcing and adding to the LTA new wins as we get them. And we remain very optimistic about it. That's the only thing that I can say right now.

In the last 3 months, we have -- we were not -- we didn't sign any win yet. So we saw a tiny reduction, but it's a nonissue.

Next, there is a question from Chen and a question from Othick that I think relates to your exposure to potential external disruptions. For example, how are your operations affected by the federal government shutdown that apparently just ended? Or is the grounding of some of the UPS and FedEx aircraft found the incident in Kentucky expected to affect any loads and schedules at your service centers?

I think that everything can have a -- every one of these interruptions or disruptions can cause some short-term hiccups. But when you look at the overall trend, none of them represent -- obviously, unless something turns into a macro global issue or challenge, none of them should have any sustained impact on our growth patterns for the future. I don't see right now any -- there is no drama here or any big impact with the exception of short hiccups here and there.

And again, that we can easily -- in reality, we are overcoming them because we have different product lines coming from different customers and a very large customer base and OEM versus MRO and other factors. So, so far, we haven't seen any major impact or concern that should be noted here.

Okay. I have a follow-up question from Ben Klieve at Benchmark that relates to the landing gear business, which is scaling and seeing some lumpiness. Do you expect that the lumpiness is going to decrease or perhaps even get more pronounced?

I'm expecting it to stay as it is through the -- again, the volatility between the quarters, but the overall trend is very strong.

Okay, next…

Maybe I can add to it. On the landing gear side, we are trying to be more proactive with our customers, and you always try to come up with a predetermined schedule of removals and when exactly they are going to park the aircraft to remove the gear and to replace. And looking at next year on paper, it looks great and very little volatility from my 10 years of experience at TAT, the plan is great until the year starts. And there are always changes and unexpected events. It can be that, I don't know, a catering truck hit a gear in another aircraft, and now they have to change there. I'm giving it as one example. But there are always changes in and surprises.

So I'm expecting volatility, but the overall trend and looking at where we are in the plan for next year, we expect to continue and to grow very nicely.

The next question is from Michael Ciarmoli from Truist.

Operator, can you assist in activating Michael?

Yes.

Michael, I think if we can hear you.

Okay. Perfect. Nice results. Just on the margins, really nice margin performance. I mean it looks like at the operating level incremental is about 31%. I think you've kind of talked about the EBITDA margins, 15%. You're basically almost there. Can maybe we think about or can you share with us how you're thinking about further operating leverage as you get some more volumes? And maybe even -- do you think you can get some pricing to be additive as well?

Yes. So for those of you who listened to the calls in the last 2.5 years, 3 years, I've been pretty consistent about saying that I believe that the best-in-class company in our line of business should be at the 15% EBITDA and above. And yes, Michael, as you stated, we are very -- we are getting there, mainly due to operational efficiencies initiatives that we had and things that we are doing. I'm happy to say that now that we are almost there, we still have a lot of opportunities and a lot of initiatives to continue and improve the margin moving forward. And I'm not even before increasing revenue or before increasing pricing. And it's a very high priority for us on our plans for next year to continue and improve our efficiency to remove waste and to become -- to reduce purchasing costs and to become more effective company. Some of it may be used to be more competitive in RFPs and some of it will result in increasing -- in further increasing the EBITDA.

Regarding pricing, we typically -- we try to be very careful about not using it as just as a tool because we are in a very competitive landscape. And we have -- obviously, we have escalation -- price escalation built into our contracts, but they are tied into predetermined indexes and like labor and materials. So prices are -- traditionally, if I'm looking years back, they were increased year-over-year, but that's not something that we are using as a tool for margin.

Got it. Okay. Helpful. And then just if I may, you guys break out your percent of revenues by MRO and OEM. And it looks like if I look at the OE percentage, it was up year-over-year, maybe close to 3%. And I just wanted to know your products on the thermal side, where you've got 737 exposure, what are you seeing there now that Boeing has gotten the FAA approval to rate break higher? Is there any destocking? Do you see any inventory? Or do you think that side of your business starts to grow as we see the volumes increase on the MAX?

Yes. I think that -- Michael, I think that specifically, if you talk about the MAX and our effect, there is a minimal impact, but not something that will have any dramatic impact on the future business one way or the other. I can say that if you look at overall aircraft production rate in our OEM business, our OEM -- obviously, our business is growing in a linear line together with the increase in production rates.

So again, without going into any specific platform, if you look across the board, if you look at the book of orders and planned capacity for Boeing, Embraer, Textron and others, we are enjoying it. And we plan to -- hopefully, we will continue to enjoy it in the years to come because we see more -- we see an increase in NPOs.

The next question is a 2-parter from Richard Kay, who said, you generate strong cash flow, again, is that sustainable? And how would you characterize your balance sheet strength today?

So I'll answer the first question about the cash flow and Ehud, if you may want to answer about the balance sheet. I think we spoke about it last quarter. We were in a very fast growth in a very unstable market with gigantic supply chain issues and other challenges with customers. And we wanted to make sure that we will be ready to the customers. So we made strategic decisions to dramatically increase inventories and a few other things to support our customers that were -- as they were struggling.

And last quarter, I mentioned that we are in a very healthy situation today that we don't believe that we need to increase and we can turn more of the EBITDA into cash. Our collection is better. We don't need to continue increasing inventories. As long as we don't go into a new product line that will require a new line of inventory, spare inventories, we are now at a position that we can start moving the inventory faster and increase inventory turns rather than inventory -- overall inventory increases.

From a CapEx perspective, we made substantial investments over the last 4 years and getting ready for the growth facilities, equipment and everything else that was required. And I think that we are moving more -- we are scaling back because we already -- we feel that we are ready with what we need for the next year or 2. And so the substantial investments are kind of behind us. There is always going to be a certain level of investment, mainly focused on 2 aspects, the maintenance, let's call it, maintenance CapEx and the second type is CapEx associated with continuing to improve our efficiency. And we are -- but all in all, we see a substantial reduction in CapEx needs, and this is also going to impact the cash. So again, cash may fluctuate mainly based on collections versus payments from quarter-to-quarter, but we do expect to continue and enjoy very strong cash flow.

And Ehud, I wonder if you would like to address the balance sheet.

Yes. [indiscernible] I'm expecting the balance sheet to continue or the equity ratio to balance sheet to continue to stay very high and very strong in the area of 70% to 75% in the coming quarters, given the profitability forecast and the capital -- the working capital needs that we're seeing. I must say that, however, as we indicated in the past that in case we'll execute an acquisition deal, part of financing of this deal will come from debt leverage, and this will change a little bit the ratios in the balance sheet.

We have a follow-up question from Michael Ciarmoli from Truist.

Okay. Perfect. Just a follow-up. I think last quarter, I mean, you had a really good landing year performance, assuming that the internal supply chain challenges and inefficiencies you've had are kind of totally resolved. And then just one more on the APUs. I wanted to know what you're seeing on penetrating the market for the 131.

You are asking about the 131 specifically. We are currently -- we have several opportunities that we are trying to bid on. We haven't won any meaningful in the last -- so far, I would say we haven't won any meaningful RFP. The opportunities are out there. And we still have some learning curve. The demand is there. The RFPs are coming. And I believe that with time we start showing substantial growth there. We're just -- we are basically at the beginning, if you will, as we stated in the last few quarters.

We have an additional submitted question, which is asking about the supply chain and whether conditions and capacity utilization are improving or how are they trending?

I would say it depends on the product lines. I believe that on the thermal components supply chain, where we purchase basically raw materials, supply chain pretty much stabilized to where it used to be pre-COVID. No major stories there. And APUs and landing gear still -- APUs is more reliable, but still very long lead times from the vendors. And on the landing gear is still unstable, both on the lead time and reliability of the vendors. So different phases. All in all, I can say across all product lines, the trend is very positive, but we are not there on the APUs and landing gear, the industry is not where it needs to be.

Here's a question from Ehun [indiscernible]. Asking about gross margins, can you -- I guess, I'm looking at the question, can you talk about the sort of the mix of gross margins across your businesses because he's observing that some of the gross margins, excluding leasing and trading did increase substantially over the quarter. And I'm just wondering what that mix looks like across the businesses?

Ehun, would you like to address it?

Guys, do you hear me? Yes. I'm sorry, my line is not so good. Could you please repeat the question, Matt?

Yes, the question would be just maybe a comment on how gross margins varies across the various business lines because there was an observation about the increase in gross margins this quarter, excluding leasing and trading.

Yes. So obviously, what you saw -- and again, I don't want to make a long-term point on one quarter. We need to look at the trend of the couple of quarters in order to determine our mind what's going to be -- what is the right gross margin because product mix is playing on the level of each revenue within the segment is also determining the gross profit due to our operational leverage. But in general, I would say that in this segment, we see an improving -- we see a trend of improving in the gross margin.

And then again, looking for the long term, we expect the margin in this segment to go up a little bit. And it is mainly due to all of the things that were mentioned during the pitch by Igal and me, where we have many plans of improving operational efficiencies. We are also leveraging our employees' utilization and also, again, having more work, more revenue on the same labor is improving by itself the gross margin.

If you look at -- maybe just to add a few things. First of all, just to add to what Ehud said, looking at gross margin from quarter-to-quarter is almost impossible because even within the same product line within everything, if you compare apples-to-apples between the quarters, you have different customers with different margin. We need to remember that on the MRO side, there are lots of variations.

On the OEM, once you have a deal and it's closed and you have the supply and you know the cost, it's pretty much stable gross margin. You know what to expect. When you receive an engine for an overall with hundreds of different parts that needs to be inspected, there is a huge variance between one engine to the other. Sometimes you get the engine and it's very easy and you replace few parts. And sometimes you get what we call a very heavy shop visit with many parts. And you need to remember that in many cases, our pricing to our customers are fixed customer -- fixed pricing. Basically, it's built on a statistical model over time. But sometimes you get -- all it takes is 2 engines or 3 engines with very heavy replacement and the margin this quarter is going to look less favorable.

And the following quarter, you got some light engines and everything is going to look great. So it's very risky to -- or not the right approach in mind, mind, I would say, to compare quarter-to-quarter, but rather to look at the long-term trend.

The final question before we turn it back to Igal, for concluding remarks is from Robbie from [ Essex Fs Capital ], asking how should investors think about Q4 and 2026?

So as I stated in the beginning, I'm going to talk only about 2026. We are very optimistic. The trend is strong. We have a very strong backlog, as you see in the numbers. We have a very large pipeline of opportunities in different stages, significant amount of potential business that we believe that we are going to -- some of it at least, a substantial portion of it we can secure.

The market trend is continuing to be strong. Both OEM demand is growing and the MRO needs are there. So all in all, all the indicators are very positive, and we are continuing to increase our internal efficiency. So we remain very optimistic about the ability to continue to grow the business next year. I think this is the best answer that I can give right now.

Igal, now turning to you for concluding remarks.

So just as final remarks. First of all, thank you for joining us today. The financial performance in the quarter further validates our business model and strategy. We are currently participating in multiple RFPs, as I said 2 minutes ago, and the growth opportunities we are pursuing giving us the confidence in long-term growth trajectory for TAT.

On top of this, we believe these are -- there are opportunities to accelerate our growth and increase our scale through targeted and strategic M&A activities. And I continue to think we are better positioned than many others in the industry for long-term growth. And I'm increasingly confident in our future.

So with that, I just want to thank everybody again for joining us today and happy to answer further questions via...

Thank you, everyone, for joining us today. You may now disconnect your lines.

Thank you. Bye.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the TAT Technologies Second Quarter 2025 Earnings Conference Call. Please note that today's conference may be recorded. My name is Matt Chesler, and I'm a partner with FNK IR, 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 Banner, 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 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 TAT Technologies actual results to differ materially from those indicated in these forward-looking statements please see our annual report on Form 20-F 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 will 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 6-K, 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 earnings call. I appreciate your interest and continued support as we review TT Technologies performance and discuss our strategic direction moving forward. Q2 marked another quarter of double-digit revenue growth for TT, reflecting the impact of the strategic initiatives implemented over the last few years. We continue to outpace the industry peer group averages and we are doing it organically through 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 enhanced long-term visibility by increasing our long-term agreement value and backlog by $85 million to $524 million. This growth reflects both new contracts, 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 reaccelerating 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 U.S. At the same time, we increased our financial flexibility to pursue potential accretive acquisitions that enhance our growth profile. With this, fund raising 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, I'm sorry, 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 growth -- with our growth strategy and new challenges, including M&A capital markets, U.S. 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 6 months of the year, revenues was up more than 20% in comparison to the first 6 months of last year. While we increased revenue at a double-digit pace, strong bookings 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 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 operations 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 average sector is facing a 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 from airline fleets to adjust discretionary maintenance activities based on evolving budget and operational needs. This creates a period of softer intake followed by surges in demand, which adds complexity and impact short-term visibility. We've seen this dynamic more clearly in the recent months. What differentiates 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 durable. 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 reflect a short-term shift in customer behavior, not a change in long-term fundamentals.

In response to the broader macro environment, Kerry has proactively deferred noncritical 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 is not -- that are not discretionary. It is sometimes delayed, but it's not diminished. Offsetting the sequential EPU 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 positions 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 term. 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, 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 with our strategic growth plan, we continue to seek opportunity to expand our capabilities. This includes exploring strategic acquisitions. There are opportunities to make accretive 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 outpaced the industry. Our strategy is working, providing the scale to position us as a meaningful provider to the aviation industry and government 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 while 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.

Thank you, Igal, and 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 sheet. We continue to see growth in revenue and improvement in profitability elements quarter after quarter for already 9 quarters in a row. Revenue in Q2 of 2025 grew by 18% to $43.1 million compared to $36.5 million in Q2 of 2024. The revenue in the first 6 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, 25.1% gross margin, sorry. 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 suffered from the strengthen of the Israeli shekel compared to the U.S. dollar by 10%. This resulted in an increase of the cost of exchange rate differences by over $0.5 million. This is a reevaluation of over $10 million of loans, which were taken 4 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 6 months of 2025. Please note that our normal average quarterly interest rate are about $0.5 million on a quarter. All the rest of 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 noncash 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 6 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 1 big beautiful bill was approved in the U.S. This bill has some positive impact on our tax exposure from learning this bill together with our U.S. tax adviser, and we are still carefully learning it and waiting for more instructions from the IRS. It looks like we will not pay taxes in the U.S. this year. And this bill further -- because this bill further increases our carryforward 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 6 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 $240 million leading us to a very strong equity to balance ratio of 78%. The strong balance sheet, together with the minimal depth, open opportunities to leverage more debt together with our cash to be used for strategic deals in the near future.

In terms of the revenue by product line, looking at the revenue per product line, all our strategic line of products grew double digit year-over-year. This is perfectly aligned to our strategy and expectations. During the second quarter, we saw some slowdown in intake of MRO mainly on the APU due to the due to volatilities and uncertainties that existed in the commercial aviation industry, by the way, by the same way that the volatility impact 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 year for exchanges, which resulted in a higher revenue indicated under the trading -- trading line of product.

Starting from mid-June, the market 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 gears segment will grow will show growth year-over-year and in line with our strategy.

With regards to the backlog, backlog and NTA value continued 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 million to $55 million, which is now under the APU segment and our LTI value. This one and another small size and some other small sized contracts 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 landing gear has shown it -- it's 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 multimillion 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 lending year is starting now. We're well positioned with a signed contract to sell the largest world fleet and with some other initiatives. And by this, I have concluded my report. But before handing 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 5 months. And great thank you for the underwriters, the legal advisers, auditors, IR firms and everybody that supported us.

And by this, I hand over to the call for final remarks and questions.

Thank you, Ehud. We're now going to open up the call for the Q&A session. To ask your question, please either raise your hand, and we'll call on you for a live question or use the Q&A widget for a written question and you can type that in and submit the question that way. Additionally, if you'd like to send the question in Hebrew, please do so, and we will translate.

With that, we'll now begin and pause for a moment to build the queue. Okay. The first question is going to be from Josh Sullivan at the Benchmark company. Josh?

Congratulations on the results. Yes. Can we just dig into the MRO acceleration comments you mentioned -- I know the quarter started off a little uncertainty just given the macros, but -- can you just talk a little bit about where the reacceleration is happening in the MRO market? Is it broad-based or any specific markets showing outsize recovery at this point.

Josh, it's Igal. If you remember, last quarter, we -- I indicated that we should expect some volatility at the end of last year. I'm in the company for 9 years and what we are seeing this time is not different than what we saw several times in the past. We have to remember that in most cases, what the services that we provide on the MRO discretionary, meaning, the airlines are not forced to send the components for overall repair by schedule or by flight towers, but it's more up to their discretion. Also, they have a large spare inventory that they maintain. And in most cases, the first time when they see uncertainty is they send less MRO work and they try to save cash by leveraging the spares. It lasts for several months until they are at spares. And then you see a recovery and then you see an acceleration because as I mentioned in my statement, the aircraft triple flying. There is no any -- nobody is reporting on any reduction in flight.

So the fleet is flying big portion of the fleet is really old as the airlines are waiting for new aircraft that are way behind schedule. And eventually, it comes. So we were telling ourselves that it will come in fourth quarter. Last year, if you recall, we spoke about it as we expected to see the seasonality of fourth quarter. It didn't happen in first quarter we spoke about it, and we thought that it will come. It didn't happen. It did come in second quarter. I don't see anything -- any drama here. So there was a deeper few months. And after a few months, we see the increase in intake. It's not specific, if I may say.

Okay. Got it. And then on the nice cash flow in the quarter, what was the largest driver there? And with this type of cash generation, how are you looking at working capital growth going forward?

I think we had 3 phases up until now in the company. First phase started in 2022, we wanted to grow. We spent the years of getting ready for the growth. And the real focus was on revenue growth. Then about a year later, 1.5 years later, we had a real focus on profitability. So not only to grow the revenue. I spoke about it many times in the last 1.5 years. Our biggest initiative and focus is on growing revenue. I want to -- personally, I would like to bid value, not just revenue. So increasing the margin is an ongoing concern with major initiatives across all TAT companies, and we are seeing the results quarter after quarter.

In parallel, if you remember, we spoke about the need to drastically increase inventory to overcome the volatility in the market and challenges in supply chain, which still exists. We wanted to make sure that we can serve the customers and that we can provide good service. So it had impact on cash. And we feel that we are in a good position now to continue to support in the market. We feel that we have the right inventories and despite the challenges in the industry, with a few exceptions, I would say, but as a general saying we are in the right place. And therefore, we added a couple of months ago, we added a third tier in our evolution to really start focusing on our cash flow. And I'm pleased with the results of the quarter with tighter controls with with improving collections and other aspects. We have opportunities to continue and do so in the next few quarters by better managing our inventories, and we feel that this is just the beginning.

Great. Maybe just 1 last 1 on the APU strategy. You winning smaller deals, the moving upmarket as you understand the process and your capabilities and then moving on to larger deals. How do you feel about that transition? Is that strategy coming together as you had planned?

So far -- as a mentioned a couple of minutes ago, so far, it's going well for us. So on the -- we are capturing more and more market share on the APUs that we've been doing historically, for the 767 and 757 fleets, and we are gaining more and more market share where we have huge advantages of competition. And on the new platforms, we decided to start with smaller fleets and smaller out of spec. And as I mentioned, we won several of them since the beginning of the year and working on several more. So that's really -- it looks promising. It's not -- it will take its time, but it's growing very nicely, and it's reflecting in the growth of the backlog and the value of the [indiscernible].

The next question will come from Mike Ciarmoli at Truist.

Maybe just on the APUs and the current dynamic out there. I guess I was thinking more that those are flight-critical offerings and obviously, airlines wouldn't really have the ability to defer, maybe just what else are you seeing there? Is some of this weakness more domestic U.S. carriers? Is it global carriers? Do you have a sense as to what kind of spares Sperry to use are out there in the system? Or are these airlines may be just doing kind of the bare minimum maintenance on those units replacing whether it's kind of life-limited components and parts to extend the life? Maybe just any more color on kind of the dynamic you're seeing there.

Sure. Mike, first of all, I think that we see it on global fleets. It's not necessarily related just to the U.S. The second thing you need to remember that we have a heavy concentration of cargo carrier -- and when the tariffs started and the cargo carrier started feeling they were really concerned about what will happen with the rents and freight needs and whatever. So it had an impact on their decisions. A typical -- I don't know, a typical airline, if I'm looking at our customers, we'll keep anywhere from 10 to 15 spare engines on the shelf at their shops. Typically, -- you asked about do they do any just light repairs. I'm not familiar with such behavior. I don't -- I cannot say that I ever saw such a behavior.

So when they actually send the engine to repair, they expect the full scope. They want the engine to be full operation. But what they do is they can -- I have 15 spares. It's enough to last for a couple of good months. And I'm not going to sell. I'm going to sit on it or I'm going to sit on the has removed the engines for a couple of months. And by the way, I'm not saying that specifically what happens with each and every 1 of them. And I personally talked with top executives at several of our large customers about it. We saw it several times in the past. So they sit on it until they feel that their spare pool is getting to a too low level, if you will, and then they send us everything. And then you see a major spike in intake.

Okay. Perfect. That's really the really good color. And then maybe shifting just on the commentary in the press release, you obviously did the equity raise and maybe looking for to grow the portfolio through M&A. Are there any specific capabilities or products you would look to target to maybe expand your kind of capability set? Or are you kind of staying in the wheelhouse of APUs, landing gears and the thermal management solutions.

No. We -- I would say we want to stay close to our existing capabilities and DNA. So as a general saying, but definitely looking to expand into more mechanical systems and components rather than just expanding within the current segments that we have. At the end of the day, the key goal on the MRO side, we are also -- with cost acquisitions, we also have some ideas relating to OEM and geographic expansion, which we discussed during the roadshow -- but when it comes to the MRO to your question, the way our strategy is to remove headache to our customers. We want to be meaningful to our customers and to buy them with -- it's not just the service and cheap price. We want to help them consolidate their vendor list. We want to be more meaningful and to add more capabilities.

So we are looking -- as we think about acquisitions, we are looking at any company that will be related to what we do in sense of our understanding of the business and our understanding of how to manage it and sell to the customer, especially when it comes to the first acquisitions where we want to be more on the conservative side and go more safe, if you will. But definitely expanding behind just APUs landing gear and heat exchangers.

Got it. And then just the last 1 for me. I know the trading kind of business and activity could be a bit lumpy -- but if I just look at your core kind of MRO from the APU landing year, that was down about 7% sequentially. What should we think about those revenues going into 3Q and 4Q?

I would just repeat what I stated that we see a large increase in intake in the last 15 months. I will keep it to that.

Thank you, Mike. The next question is from Ben Klieve at Lake Street.

Perfect. So congratulations on a A couple of follow-up questions here. One, great to see the 777 APU in the backlog now. Can you elaborate at all on your outlook for the APU pipeline specifically within the 737 or A320 airframes?

At this point, we are still doing -- we are performing the work on them on a one-off basis, and we haven't announced any -- we have a very small RFPs that we won not meaningful enough to publish a separate deal, but we haven't published any meaningful win yet, still working on it.

Very good. And then a follow-up question on your M&A commentary. -- you talk a bit about how comfortable you are with multiples in the areas that you're looking at. Are there parts of the market that are getting a little frothy for your comfort? Or are you still pretty comfortable kind of with valuations across the board?

Maybe I'll answer it in a different way. I plan to be extremely disciplined in our approach to acquisitions. -- looking to acquire -- we are not going to acquire for the sake of acquiring. We need to -- we will acquire if it makes sense, if it adds value to our customers, but also if we are -- if it adds value to the shareholders of the company. So the multipliers will have to be right and if a certain acquisition will be out in the market for a bit and prices will not be reasonable, we are not going to go for it.

Got it. Very good. And then 1 last 1 for me. the trading and leasing business, as you noted, saw on your tripling here year-over-year. I know that's a lumpy business and probably pretty difficult to forecast. But can you kind of give us any expectations on on the relative year-over-year growth here that you're looking at in the second half within that segment?

Yes. So there are 2 aspects here. The first aspect is the leasing side of the business. Everything, every asset that we own is listed. We have nothing that is sitting and waiting. -- there is huge demand, and I wish that we could have had more assets for the leasing activity. So over there, it's not going to grow substantially because everything that we have is deployed, but it's steady and continues. And as long as the supply chain challenges in the industry continues, I feel that we will keep on enjoying very strong demand on the leasing side.

On the trading, it's a little bit more challenging. There are 2 factors here. First of all, our trading business is based on finding has removed assets, assets that were removed from all the aircraft, or fleet buying them then bringing them to the shops overhauling them and exchanging them with exchange programs to customers that are out of inventory or in other cases on the lending year selling them to a customer that needs lending gear sets. But there are 2 factors here that makes this -- makes it a little bit more spotty. You cannot -- it's not -- there is no real ongoing flow of deals that you can look at, therefore, the answering the question is very difficult. The first factor is that as a general saying, because of the fact that the airlines keep on flying very old platforms, there is much less turndown activity of old airplanes comparing to what it used to be in the past, up until 1.5 years, 2 years ago.

So it's much harder to find as remove assets from teardowns to purchase. And there is lots of companies like us that are dealing with trading, as you know, that we're all fighting on the same fleet. So one challenge is to put your hand on the right assets and to buy them typically a very first deal that goes away within a couple of days. And the second factor is operational efficiency. So let's assume that you perish that you purchased the asset. Now you need to overall it and you want to balance it with the MRO intake that we have. So first of all, we need to take care of our customers on the MRO side.

What I had mentioned before is where we leveraged it in second quarter. So we had softer intake than usual, which basically opened up some capacity and we immediately leverage the capacity to overall assets that we purchased since the beginning of the year and to put the -- to put them on the shelf for sale and to sell or to exchanges, APUs, exchanges lending gear sales. and you see it in the results. So this factor of ability to find the assets in the market and the capacity that you need to reserve to take care of your customers are going to continue and creating fluctuations on the trading deals, almost like a counter cycle, if you will, that can change from quarter-to-quarter.

Having said all of this, we have a team of -- a great team of employees and leaders in the trading department that are working very hard to bring more and more deals and to find more and more assets. So we definitely want to increase this business.

Very good. That's very helpful commentary. Well, congratulations again on a nice quarter and really great backlog growth.

Thanks, Ben. I appreciate the comment. Appreciate your question, Ben. The next question will be from Jonathan Sigman at Stifel. Jonathan?

Just on the margins, I was impressed to see them rise sequentially despite some of the segments, not having sales growth sequentially. Was there any one-off benefits there? -- that helped you that might not be sustainable? Or any other color you can expand on what drove that impressive margins?

Jonathan, we -- I stated it every quarter in the last, I believe, 6, 7 quarters, we -- my goal is to improve over strategy that results in improving profitability. So for me, improving the margin and improving the profit is more important than just improving revenue for the sake of revenue. Behind this nice slogan, we have meaningful initiatives across the board in all the sites. I'm talking about initiatives to improve operational efficiencies, automation, improving equipment initiatives around the workforce itself, how to make the employees life easier, how to improve productivity, how to improve utilization of employees. I can say that with all the improvements that we have achieved, we have still many of these initiatives underway. And this is why we feel that we have more room to continue and improve.

So I wouldn't say that there was any specific element, onetime element that contributed because if you look at the overall trend over the last 2 years, it's consistent improvement. The second thing that we do to improve the EBITDA is we make sure that we manage our expenses. We we are all -- we are running the business very need. And we are not -- we are paying a lot of attention not to increase our operating expenses more than what the business can afford. -- and make sure that we always increase revenue more than what we increased expenses and spending to verify that we will increase the margin. The last major effort that we have is on the purchasing price, continuing substantial effort in our supply chain to reduce cost to find alternative suppliers to improve quality and to reduce waste in production. All of this resulting in what we see. And again, I believe that we have still more to do in the coming few quarters.

And then slipping another 1 on freight. You mentioned that being impacted by tariffs. Specifically, is that end market 1 where you're seeing some strengthening in the last month.

Yes, definitely. And I'm not sure that they had a way I'm not representing the freight companies, the cargo carriers, but there was a concern. When the tariff came, I know they were expressing serious concern about potential impact on their business. I don't know if at the end of the day, they reported a slowdown or not, to be honest, Jon, but they act based on the concerns, if you discretionary spending is the first time that you act added you cut when you have concern about the outlook of your business. So that's our interpretation situation.

I'm now going to move to any written questions that were submitted using the Q&A widget. Here is a question around the backlog. The question is how long is the backlog in terms of years ahead? Or how much of it is for next year? Maybe talk, Igal, about how the backlog converts into revenue over time.

Yes. So the backlog includes 2 types of its backlog and long-term value of MRO. On the OEM side, it's backlog. It is a confirmed POs that we received from our customers. And on the MRO, when every contract that we signed is based on the customer forecast, we assigned the value that we expect the -- revenue value that we expect to to see from the customer. We actually update this value on an annual base based on the actual performance of the customer. So that's a methodology that we are using. MRO deals are typically signed between 3 to 5 years. So when we sign -- if we announce, I don't know, the $40 million deal. If it's -- based on 5 years, it's going to be $8 million a year for the coming 5 years. But the range is between 3 to 5 years.

And on the OEM side, you can split it again between 2 types. One is shorter-term projects, okay, accessory air condition systems and such, typically orders that we receive today then we're supposed to supply them in the next -- by the end of next year. On the thermal components, I think that we are full -- we have all the POs already for 2026. And behind that, we are using -- if we have an exclusive agreement with an era manufacturers where we supply the thermal components, we are calculating the value that they will have to purchase from us in the following years based on their production plan of aircraft.

So again, it's not an easy answer. And it's definitely not just for next year. So again, MRO 3 to 5 years, OEM on fleets that are going to continue being produced in the next -- over the next couple of years. We look at the value based on the production.

Thank you for that response, Igal. There are additional questions, but as I read through them, there are questions that have already been answered by you. So respectfully appreciate the submission of those questions. But hopefully, you got the answers you need it. If not, please feel free to reach out to the IR team after the call and we'll follow up with you. At this point, I would like to turn the call back to Igal for concluding remarks.

So basically, just as a conclusion of this call, first of all, thank you for joining us. This quarter was an otherwise stone for TAT, reflecting the benefits of our diversified offer to our customers and and the growth prospect that it provides our increasing strength enable us to a pivotal capital market transaction that strengthens our balance sheet and optimizes our capital structure. This position us to advance to the next stage of our strategy, adding acquisitions alongside with continuing the organic growth that we enjoy.

We head into the second half of the year with the strong momentum while remaining mindful of ongoing industry-wide challenges. I believe that we are now better positioned than before, and I am more confident than ever in our long-term prospects. So again, thank you very much for the confidence in us and for joining us, and have a good day.

This concludes the earnings conference call. You may now disconnect your lines.