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    TATT
    Earnings call· Jun 2026(Q2 FY26)

    TAT TECHNOLOGIES Q2 FY26 earnings call TATT

    Aug 5, 2026 Source

    Executive summary

    TAT Technologies Q2 FY26 — Record Backlog and Strong Revenue Growth

    TAT Technologies reported a record-breaking second quarter, driven by strong demand and improved supply chain conditions, leading to a 23% revenue increase and the highest backlog in company history. The company strengthened its competitive position through an expanded Honeywell partnership and is actively pursuing strategic M&A, supported by a robust balance sheet. While supply chain challenges persist in some areas, management remains optimistic about future profitable growth.

    Highlights

    5

    • Achieved a record backlog of $650 million as of June 30, 2026, providing excellent future revenue visibility.

    • Revenue grew by nearly 23% year-over-year to $52.9 million in Q2 FY26.

    • Expanded strategic relationship with Honeywell Aerospace, becoming the sole global authorized distributor for 331-200, 250 APU spare parts and extending MRO license to 2036.

    • Net income increased by 58.1% to $11.5 million for H1 FY26 (including a one-time gain).

    • Secured a new $100 million 5-year revolving line of credit to support M&A and growth.

    Concerns

    4

    • Ongoing supply chain inefficiencies increased procurement costs and dampened profitability gains in the short term.

    • Experienced foreign exchange losses of over $600,000 in Q2 FY26 due to the stronger Israeli shekel against the USD.

    • Cash used in operating activities was $0.6 million in Q2 FY26, primarily due to increased inventory investments.

    • The landing gear business, representing about 5% of revenue, continues to be affected by drastic lead time extensions, in some cases over 12 months.

    Guidance & targets

    4
    CategoryTargetConfidence
    Overall business outlook
    very optimistic
    low materiality
    Medium
    Inventory growth
    continue growing
    medium materiality
    High
    Operating cash flow trend
    continue to trend in this way
    medium materiality
    Medium
    Revenue growth from new wins
    steady growth, not any major jump
    low materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Heat Exchanger
    Growth is single digit and steady, in line with expectations for both OEM and MRO business.
    H1 FY26 Growth: 4.2%
    		—7.8%——
    APU
    Q2 results affected by supply chain recovery and new long-term contract wins. Expected to continue positive trend despite prior supply chain impact.
    H1 FY26 Growth: 22.2%
    		————
    Trading & Leasing
    Increased due to several good trades and steady revenue from leasing activities. Will benefit from 3 additional 131-9A APUs purchased. Still affected by supply chain constraints.
    Percentage of Total Revenue: 5%
    		—17%——

    Operational metrics

    30
    Revenue growth
    23%YoY
    Q2 FY26

    Company-wide revenue growth.

    Gross profit
    $13.3 millionup 23% YoY
    Q2 FY26

    Reflected healthy pricing and operating execution despite continued supply chain inefficiencies.

    Gross margin
    above 25%
    Q2 FY26

    Healthy pricing and operating execution despite supply chain inefficiencies.

    Gross margin
    24.8%up 40 bps YoY
    H1 FY26

    Company-wide gross margin for the first six months.

    Operating income
    $5.6 millionvs $4.4 million in Q2 FY25
    Q2 FY26

    Compared to 10.3% of revenue in Q2 FY25.

    Operating income
    $8.6 millionflat
    H1 FY26

    Operating income for the first six months of 2026.

    Net income
    $8.1 millionvs $3.4 million in Q2 FY25
    Q2 FY26

    Includes a nonrecurring one-time gross gain of approximately $4.3 million and a nonrecurring charge of $900,000 related to tax expenses.

    Net income (excluding nonrecurring items)
    $4.6 million
    Q2 FY26

    Excluding the nonrecurring gain from the minority interest sale.

    Net income
    $11.5 millionincreased by 58.1%
    H1 FY26

    Includes a $3.4 million one-time benefit.

    Net income (excluding nonrecurring benefit)
    $8.1 millionincreased approximately by 11%
    H1 FY26

    Excluding the nonrecurring benefit for the first six months.

    Diluted earnings per share
    $0.61vs $0.30 in Q2 FY25
    Q2 FY26

    Includes nonrecurring items.

    Diluted earnings per share (excluding nonrecurring items)
    $0.35
    Q2 FY26

    Excluding the nonrecurring gain from the minority interest sale.

    Diluted earnings per share
    $0.87vs $0.64
    H1 FY26

    Inclusive of the one-time gain for the first six months.

    Diluted earnings per share impact from one-time gain
    $0.26
    H1 FY26

    Impact of the one-time gain on diluted EPS in the current period.

    Foreign exchange losses
    over $600,000
    Q2 FY26

    Due to the strength of the Israeli shekel to the U.S. dollar.

    Adjusted EBITDA (excluding one-time gain)
    $7.4 millionvs $6.1 million in Q2 FY25
    Q2 FY26

    Compared to 14% of revenue in Q2 FY25.

    Adjusted EBITDA (excluding one-time gain)
    $12.3 millionincreased by 4.1%
    H1 FY26

    Adjusted EBITDA for the first six months.

    Cash used in operating activities
    $0.6 millionvs positive cash flow in Q2 FY25
    Q2 FY26

    Impacted by continued increasing inventory and uncollected revenue.

    Net cash balance
    $43 million
    Q2 FY26

    Balance sheet position at quarter end.

    Debt-to-cash ratio
    0.2
    Q2 FY26

    Leverage ratio at quarter end.

    Debt to last 4 quarter EBITDA ratio
    0.43
    Q2 FY26

    Leverage ratio at quarter end.

    Revolving line of credit
    $100 million
    Q2 FY26

    Newly secured facility with U.S.-based banks, providing flexibility for M&A and growth.

    SG&A expenses
    increased
    Q2 FY26

    Due to investment in growth, infrastructure, and M&A capabilities.

    R&D expenses
    modestly higher
    Q2 FY26

    Due to investment in development of future thermal systems.

    Nonrecurring one-time gross gain
    $4.3 million
    Q2 FY26

    From the sale of a minority interest in an unconsolidated entity.

    Nonrecurring charge
    $900,000
    Q2 FY26

    Related to tax expenses.

    Net impact of nonrecurring items on net profit
    $3.4 million
    Q2 FY26

    Combined impact of one-time gain and tax charge.

    Revenue
    $94.1 millionincreased by 10.4% YoY
    H1 FY26

    Total revenue for the first six months of 2026.

    Gross profit
    $23.4 millionincreased by 12.4%
    H1 FY26

    Gross profit for the first six months of 2026.

    Landing gear business percentage of total
    5%
    Q2 FY26

    Landing gear is a very small portion of the business.

    Industry KPIs

    3
    MetricValueDetails
    Total company backlog$650 millionUSD
    Program segment backlog$615 millionUSD
    Aftermarket services splitfull ecosystem support

    Orderbook & backlog

    2
    Total backlog$650 millionJune 30, 2026

    highest in history

    Provides excellent visibility into future revenue.

    Long-term agreement value$615 millionJune 30, 2026

    record

    Increased to a record level.

    Deals & partnerships

    1
    Honeywell AerospaceExpanded strategic relationship, becoming sole global authorized distributor for spare parts for 331-200, 250 APU platform and extending MRO license for that platform.MRO license extended to 2036

    Acquired 3 Honeywell Aerospace 131-9A APUs to expand trading and leasing business. This deal also marks the first time TAT will gain proficiency in distribution services.

    Risks & headwinds

    5
    Ongoing supply chain inefficiencies and increased procurement costsShort term, ongoing

    Dampened profitability gains; increased procurement costs in certain product lines.

    Mitigation: Targeted inventory investment; securing certain components at higher cost when necessary; strengthening customer relationships.

    Weaker exchange rate of USD against Israeli shekelQ2 FY26

    Foreign exchange losses of over $600,000 in Q2 FY26.

    Mitigation: Working with customers and suppliers on finding solutions.

    Landing gear market supply chain challengesOngoing, no visibility on stabilization

    Drastic extension of lead times, in some cases to more than 12 months, significantly impacting ability to adjust to needs. Affects 5% of business.

    Mitigation: Drastically increasing inventory to keep much more buffers.

    Tight USM (Used Serviceable Material) parts marketOngoing

    Much more difficult to find and higher prices due to airlines keeping old fleets flying longer.

    Mitigation: Drastically increasing inventory to keep much more buffers.

    Macro-level supply chain issuesOngoing

    More parts producers/raw material producers extending lead times; OEMs reducing inventory levels; subcontractors struggling to catch up post-COVID.

    Mitigation: Adjusting systems to new expectations and lead times; increasing inventory.

    What to watch in Q3 FY26

    4

    Inventory growth and operating cash flow impact

    next quarter
    CurrentInventory continued increasing in Q2 FY26, contributing to $0.6M cash used in operating activities.
    TargetContinued growth in inventory, with Q3 cash collections expected to positively impact cash flow.

    Why it matters

    Inventory investment is strategic for future revenue growth and supporting the new distribution agreement, but also impacts short-term cash flow.

    I'm expecting inventory to continue growing. Again, that's a strategic decision here, and it will have some impact on the working capital. On the other hand, as I mentioned before🔁, there were several deals that were not collected during the second quarter of the year, and they were pushed for collection in Q3 for this year, which will create a positive impact on the cash flow.

    Q&A highlights

    6

    Can you provide context on the number of APU units awaiting parts availability, specifically where it peaked and where it sits now?

    The number of APU units in the shop peaked at 50-60 in Q1 due to missing parts, which were subsequently shipped in Q2. The situation has normalized, but 40-50 engines are still in the facility at any given time due to new business wins leading to a gradual increase in engines in process.

    “I would say that now it's back to normal. You need to remember that the other factor is that we won several new businesses, which we published. So obviously, with new customers sending more engines, you should expect to see a gradual increase in the amount of engines a week in the process.”

    asked by Benjamin Klieve · answered by Igal Zamir

    2 min read6 chapters

    Detailed Narrative

    01

    Record Performance & Market Strength

    TAT delivered a record Q2 FY26, with revenue up nearly 23% to $52.9 million and the highest backlog in company history at $650 million. Commercial aviation fundamentals remain exceptionally healthy, with aircraft staying in service longer and high utilization rates, supporting strong demand for MRO and components across the business. This strong demand is converting into revenue, further bolstering performance and expanding the record backlog.

    02

    Honeywell Partnership Expansion

    A significant milestone was the expansion of the strategic relationship with Honeywell Aerospace. TAT is now Honeywell's sole global authorized distributor for spare parts for the 331-200, 250 APU platform. The MRO license for that platform was also extended to 2036, strengthening long-term visibility and securing profitability for this important business. This agreement adds a new distribution capability, allowing TAT to support the full life cycle from parts to repair and return.

    03

    Supply Chain Dynamics & Profitability

    While supply chain conditions improved significantly for APU, they have not fully normalized across all areas, particularly for landing gear. The company prioritized customer support through targeted inventory investments and securing components at higher costs when necessary, which somewhat dampened short-term profitability gains. Despite these inefficiencies, gross margin remained above 25%, and adjusted EBITDA was 14% of revenue, reflecting healthy pricing and operating execution.

    04

    Strategic M&A Focus

    M&A remains a key component of TAT's long-term growth strategy, aiming to expand MRO capabilities, strengthen the thermal system business, broaden the platform portfolio, and establish a greater geographic presence. The company has built a robust pipeline of potential acquisition targets, completed initial due diligence on several opportunities, and is actively evaluating them. This strategy is supported by a strong balance sheet and a new $100 million 5-year revolving line of credit, with a disciplined approach to valuations and strategic fit.

    05

    Working Capital & Cash Flow

    Cash used in operating activities was $0.6 million in Q2 FY26, primarily due to continued increases in inventory. This includes purchasing inventory for the new distribution deal and strategic investments to mitigate market shortages. Management expects inventory to continue growing in the near term but is not concerned, citing sufficient cash and profitability. Several deals recognized as revenue in Q2 are expected to convert to cash collections in Q3, providing a positive impact.

    06

    Segment Performance Highlights

    All product segments contributed to growth. Heat Exchanger revenue increased by 7.8% in Q2 FY26 and 4.2% in H1 FY26, showing steady, single-digit growth. The APU business saw strong recovery and new contract wins, growing 22.2% in H1 FY26 despite prior supply chain impact🌐s. Trading & Leasing increased by 17% in Q2 FY26, benefiting from several good trades and the acquisition of 3 additional 131-9A APUs, though still affected by supply chain constraints.

    AI-generated summary of the company’s earnings call. Not investment advice.