Was the Q2 parts availability improvement a surprise, and what are your expectations for full supply chain normalization?

The specific Q1 crisis with one major OEM that couldn't ship is now resolved. However, general supply chain challenges persist in MRO and aerospace, with extended lead times from parts producers and OEMs reducing inventory. This requires more advanced prediction of needs, mainly affecting landing gear and APU. “The last factor is the specific crisis that we had in Q1 with one major OEM that just couldn't ship. And when we announced it first time when we published our annual results, we said that we have a problem and we didn't see the light at the end of the tunnel, but we've been getting a lot of promises for recovery, which took a lot of time. Eventually, they caught up. So this major crisis that we experienced in Q1 is behind us.”

With supply chain improving, how should we think about backlog conversion? Will it release or expand even as you deliver more?

The vast majority of the backlog increase comes from long-term agreements spread over 3-5 years, so steady growth is expected, not major jumps. Q2 included some catch-up from Q1. It's recommended to look at the average of the first 6 months rather than Q2 as a baseline for future forecasting. “the vast majority of the of the backlog increase, the value of the long-term agreement is long-term agreement. So we're not expecting any, I call it, miracles quarter-over-quarter. Obviously, Q1 was a one-time dip that we recover from it. But moving forward, any new win that we published is going to be spread over 3 to 5 years, and we are expecting a steady growth, not any major jump.”

What leverage levels are you comfortable with for M&A, what areas are of strategic interest, and does the lead time dynamic influence your M&A thoughts?

The company has a very healthy funnel of M&A opportunities and is disciplined on strategic fit and valuation. Any executed deal will be at a lower multiple than TAT's trading multiple and financed with 50% credit and 50% capital market money to maintain healthy leverage without taking excessive risk. “any deal that will be executed will be at a lower multiple than we are trading for sure. And we usually go for -- to finance it with a 50% credit and 50% the money that will come from the capital market. We're not going to expose the company too much in terms of leverage, and we want to keep it as a healthy leverage, nothing more than that.”

TATT

TAT Technologies (TATT) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 5, 2026

Source: earnings call transcript

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

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

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

Category	Target	Timeline	Confidence
Overall business outlook	very optimistic low materiality	FY26	Medium
Inventory growth	continue growing medium materiality	rest of the year · FY26	High
Operating cash flow trend	continue to trend in this way medium materiality	future	Medium
Revenue growth from new wins	steady growth, not any major jump low materiality	future	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
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%	—	—

Orderbook & backlog

Total backlog $650 million June 30, 2026

highest in history

Provides excellent visibility into future revenue.

Long-term agreement value $615 million June 30, 2026

record

Increased to a record level.

Deals & partnerships

Honeywell Aerospace Expanded 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

Ongoing supply chain inefficiencies and increased procurement costs Short 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 shekel Q2 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 challenges Ongoing, 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 market Ongoing

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 issues Ongoing

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

Inventory growth and operating cash flow impact

next quarter

Current Inventory continued increasing in Q2 FY26, contributing to $0.6M cash used in operating activities.

Target Continued 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.

Find out whether TATT delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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 impacts.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.