TAT Technologies Ltd. Q2 FY2025 earnings call

• Q2 marked double-digit revenue growth, fourth consecutive quarter of sequential gross margin improvement (exceeding 25% for the first time).
• Long-term agreement value and backlog increased by $85 million to $524 million.
• Successful public offering, welcomed new institutional investors.
• Focus on strengthening board of directors.
• Operational flexibility to shift capacity to offset softer MRO volumes via trading opportunities.
• Growth in APU work and tripling of trading/leasing revenue.

Second quarter revenue increased by 18% to $43 million, up from $36.5 million in the same period last year. Gross profit increased by 35% and gross margin expanded by 320 basis points to 25.1%. Adjusted EBITDA increased by 41.9% to $6.1 million. APU work in the second quarter increased 12% year-over-year but decreased slightly sequentially. Trading and leasing revenue tripled. Revenue from all product segments grew double digit year-over-year.

• Expect ongoing quarter-to-quarter volatility in MRO intake due to macroeconomic and operational headwinds.
• Business model remains durable despite market volatility.
• Plan to pursue accretive acquisitions to expand addressable market and accelerate growth.

• Macroeconomic and operational headwinds affecting the industry.
• Airline fleets adjusting discretionary maintenance leading to softer MRO intake followed by surges, impacting short-term visibility.
• Market volatility continuing to pose challenges.

Q: Can you talk about the MRO acceleration and where it's happening?

A: Igal Zamir mentioned MRO intake dipped due to airlines leveraging spare inventories but would recover as spares run low. It's not specific to a market.

Q: What was the largest driver of cash flow in the quarter?

A: Igal Zamir said better collections from customers and improving payment terms from suppliers were key.

Q: Any specific capabilities targeted for M&A?

A: Igal Zamir said to stay close to existing capabilities but expand into more mechanical systems and components beyond APUs, landing gears, and thermal management.

Q: On margins, any one-off benefits?

A: Igal Zamir stated ongoing initiatives in operational efficiencies, expense management, and supply chain cost reduction drive margin improvement, with more room to grow.