TAT Technologies Ltd. Price & Performance (TATT)

The financial measures discussed today include non GAAP measures, We believe these we believe investors focus on non GAAP financial measures in comparing results between periods and among our peer companies that publish similar non GAAP measures. Please see today's press release our earnings release and the Investors section of our website at tattechnologies.com for a reconciliation of non GAAP financial measures to GAAP measures. Non GAAP financial information should not be considered in isolation from or as a substitute for or superior to GAAP financial information. Is included because management believes it is 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 the company uses have limitations and may differ from those used by other companies. With all that, we would now like to turn the call over to Egal. Thank you, and good morning, everybody.

And thanks for joining us for our fourth and annual results call. 02/2024 was another solid year of fast growth, increasing profitability, and strong execution of our strategic business plan. We are very proud in the result. We delivered a 34% increase in revenue to more than $150,000,000 in revenue and and grew net it come by 39% comparing to 02/2023. The fourth quarter was just as strong with revenue increasing by 29% to $41,000,000 compared to q four of twenty twenty three.

In terms of profitability and margin, there we also increased this year with gross margin increasing from 19.7 in 2023 to 21.7 this year. And as you saw, more than 23% in q four. And adjusted EBITDA margin increasing from 9.7% in 2023 to 12.2% in 2024. Major efforts have been made and are still ongoing to to continue and improve profitability in 2025. And we expect the trend to continue. A lot of emphasis on on on improving our profitability, not just going to top line.

This year, we launched our new capabilities, especially our APUs, one thirty one and five hundred. Those new capabilities open us to new substantial markets. A lot has been done during 2024 to build ourselves towards this blue ocean market, and it was reflected in our results. Revenue increase and and other things. We did came with a lot of investment in inventory, and we are well positioned going into '25 to continue and enjoying this very large market. Another thing is that during the year, in 2024, we focused on expanding our trading and leasing capability, which allow us to enjoy a built in advantage by using our in house MRO capability to purchase and components in the market, overall them, and trade or release them to our customers, especially in periods where the industry is challenged with supply chain challenges and delivery challenges having the materials and the components available on the shelf, [indiscernible] Also helps us centralize our supply chain, and we aim to continue growing this activity and strengthening it during 2025, and and we are enjoying very high profitability on it. Our backlog and LTA value at the end of twenty twenty four increased to $429,000,000 comparing to the $406,000,000 at the end of twenty twenty three.

And we are very pleased with it because despite of on top of the growth that we were able to show in revenue in '24, we booked more more new orders, and we won new business. So we are ready, and it's a good reflection of the potential growth 2025, 2026. Supply chain is continues to be a challenge in the industry, especially with parts and materials availability and longer than normal lead times. In order to overcome the challenges and be ready for the expected growth in 2025, but also in order to provide great service to our customers and have assets ready for trading, we implemented a strategic sourcing plan which reflects in our inventory. You can see in the inventory the balance the inventory at the end of the year, the growth, most of it if not all of it, is strategic decisions that we made to get ready with parts materials, and full components like engines or landing gears available on the shelf, so we can support 2025 business and continuous growth. As an outcome of this strategic and this and the implementing of this supply chain strategy, we we basically use the the profits that we generate throughout the year.

And reinvested it to to do two things. First of all, to support the the working capital, but also to support the inventory buildup. And it reflects in a negative operation cash flow for the year. Something that we did as a strategic decision in order to be ready for this year. So at the end of the day, bottom line, we are summoning a meaningful year with growth, that is much higher than the industry. Profitable and expanding our margin, While there are certainly challenges ahead of us, mainly gaining new contracts, as a new player in the one thirty one and five hundred APUs, overcoming the supply chain. We are looking forward to another strong year in 2025 with focus on improving performance to our customers increasing profitability margin, and growing the top line. With that, I will pass the the speaking to to Eldon Yarir, our CFO, to the the financial report. Thank you, Rigal. Good morning, everybody, and thank you for joining us today. As Yigal started, we completed a very successful year We'll elaborate a little bit about the numbers and the profitability elements. Both for q four of twenty four compared to q four three and also for the full year's 2023 versus 2024.

So revenue in q four went up to $41,000,000. Compared to 38.8. It's an increase of 29%. Quarter to quarter. Gross margin in q four of twenty four went up to 23.2% compared to twenty one point nine in q four of twenty eighty three. And the adjusted EBITDA went up by almost 60%. From 03/2004 in the q 4 of $23,000,000 to $5,400,000 in q four of twenty four. Earning per per share on a fully diluted basis went up to 32¢ per share. It's a 658% increase compared to q four of twenty three. Looking at the year to year results, so the year the full year of 2024 ended with the $152,100,000 of revenue. Compared to $113,800,000 in 2023, which is an increase of 34%. The gross margin went up from 19 in 2023 to 21% of revenue. Which represent $33,000,000 of gross margin. The operating profit went up as well. Almost double itself or even double itself from $6,100,000 to $12,500,000, and the adjusted EBITDA went up from 11.1 in 2023. To $18,600,000 in 2024, representing a 67% increase in the adjusted EBITDA. Net profit also more than doubled, 100% increase between the year of 2023.

They were $4,700,000 compared to 11.2. And in the year of for the full year of 2024, the earning per on a fully diluted basis were was a dollar per share, representing 95% increase compared to the year of 2023. One of the things that we are very proud of them and we're elaborating them quarter after quarter is not is that the fact that the company is growing its revenue quarter after quarter, but we are more proud with the fact that are improving our gross margin, operating margin, and obviously, net and adjusted EBITDA. So all profitability elements went up quarter after quarter. So gross margin went up for 21.9% in q four of twenty twenty three and gradually went up up to 23.2. In q four of twenty twenty four and the same with all other operating margin, net profits, adjusted EBITDA, Again, I must emphasize even though we're presenting quarter after quarter, I I believe that in order to better analyze the company, you need to look at more of four quarter results, rather than trying to analyze and understand exactly what happens every quarter. Any small deal of $23,000,000 can make change in the in the quarter, both revenue and profitability.

Another analysis that we are showing every quarter is the revenue per product line. So you can see that the we're really emphasizing about our four major product line, which are heat exchange APU, the trading and leasing, and the lending gears. Heat exchangers both OEM and MRO went up from $13,300,000 in q four of twenty twenty three up to $16,600,000 in Q4 of 'twenty four, APU segment went up from $9,200,000 in March to $30,000,000. It's an increase of 42% in the revenue of this segment. Trading and and leasing leasing also went up for $2,000,000 in q four of twenty three up to $3,300,000 in q four of twenty four with an uptick of 5.7 that we reported in q three of twenty twenty four. The lending year is already at the level of $2,800,000 with expecting revenue to grow dramatically in 2025. Looking looking at the year by year numbers of the of the major product line, you can see that heat exchange activity went up from $3,100,000 in 02/2022 to $63,200,000.0 at the year of 2024 APU with a dramatic increase from $18,700,000 in 2022 up to $43,300,000 in 2024, And, obviously, as Igor said, we just started scratching the surface of the new APU engines capabilities that we have, and we expecting to see another ramp up in in 2025.

And the trading and leasing went up from $200,000 to 13.9. Lending yield is pretty stable. And as we explained, there's a cycle in this in the lending activity that we are presenting. The cycle the another cycle of four to five years started in Q4 of twenty twenty four and expected to ramp up during May. To a much higher numbers. So, again, we're very proud with the increase all the not only the revenue, but also all the profitability elements. So revenue is going up. We go profit and margin are going going up. And you can see the table. It's steady steady growth quarter after quarter. The same with the operating margin and the net and the net income. Two things that, I'm asking investors to be aware of that, impact the net income of the company is one is the is the interest expenses that we are paying. We are currently sitting on almost $20,000,000 of loans, of them long term, some of them short terms. With interest rate of anywhere between 7.8% to 8.3% of interest. This is resulting in almost million dollar interest expenses in the year of 2024, and expected to continue this way, for the year '25.

And the second element is tax expenses. Which are going to go up in 2025. The company is not going to pay taxes in 2025. But we're going to record the tax expenses which are mainly due to changes in the in the tax assets and liability on our balance sheet. And we're expecting to start paying taxes by the end of twenty five, starting 2026. In terms of the business breakdown, so, again, the company is really focusing its activity on the commercial aviation side of the business. Less on the military, The military revenues in 2024 were were 18% out of the total revenue and commercial were 82%. In terms of the two major side of business, which are OEM and MRO, So OEM were 27% in q four and MO 73%. But looking at the full year, OEM were 32%. And MRO 68, which is very, very steady if you're looking also backwards to the years of 2023 and 2022. In terms of the geographical distribution of the revenue, North America obviously continued to be very strong. 70% of our revenues are coming from US customers. 11% out of Europe, and the rest is the the rest of the world are the rest.

And the last slide is about the backlog. So you can see on the left side that backlog is steadily going up from $400,000,000 in 2022 to $429,000,000 at the end of twenty twenty four. 51% of fleet are the heat exchangers, long term agreement. APU agreements, which are usually for anywhere between two to five three to five fields are 28% of the of the backlog and 14% of the backlog are, again, lending contracts. As we as we said before and in the past, are going to participate in bids on large bids on the new APU segment on on the year of 2025 and and on. And once we start winning those contract, you will see another jump in the another step jump in the backlog number. By this, I'm returning the call to Miguel Zamir, our CEO.

So thank you, Ehud. So just to summarize, '24 was another strong year. And when we look at our '20 going into '25 and then '26, we still enjoyed the same strong demand that we've been seeing in the last two years. Industry is still recovering, and not sure that in some cases, we don't see the light at the end of the tunnel in terms of of when when the the industry is going to catch up with the demand. So they're increasing demands. We have a large new increase in our MRO orders. We already have a good visibility to this year and starting to see increasing book of orders also already for '26. The two new engines, and I would mention bidding on a new contract. It's a major growth engine for the company. The trading and leasing activities, which we plan to continue and expand, and the strategic deals that we have signed and and the opportunities that we have for growth in the lending yield. So, basically, it's the land the same landscape of growth engines that we that we discussed in the previous quarters and we are very optimistic about it. And opportunities for growth moving forward.

So okay. [indiscernible] Okay. Thank you, Igor. Yeah. We're now gonna open up to the q and a session. First, with some instructions. As a reminder, there are two ways to ask a question from the Zoom webcast. The first is to use the raise your hand icon which is at the bottom of your screen. Clicking on this will alert, me that you'll wanna be called on to ask a live question, and you'll be placed in a queue and called on. Just know you're you're gonna be on mute until you're called on. Second way to participate in q and a is to use the q and a widget. Which will allow you to type in and text the question in. We'll take questions from there as well. But just note, if we run into a time constraint, someone from the IR team will get back to you if your question is not asked on today's call. With that, we'd now like to begin and pause for a moment to build the queue. I will now take the first question. First question is gonna from, Josh Sullivan, at, Benchmark Company. Josh, go ahead. Josh, be sure to take your line off the mute.

If you've not already done so. Ash, I believe you're still on mute.

How about now? Can you that's No. No. You're good. Okay.

Hey, Leo. Good morning. Good morning. Thank you.

Yeah. Just as, you know, congratulations on the result. As far as the investment in inventory, given the ongoing unstable nature of the supply chain, Can you just highlight what you're seeing from suppliers at this point maybe versus the previous quarter?

So I I think that we we didn't see any big change in the supply chain behavior over the last two quarters. And, you know, without without going to too many details, in some product lines, and I mentioned it in previous calls, the we we are fully recovered and the supply chain is recovered. And over there, like, you know, internal and we don't go into these details, we take a very strategic approach. So an anywhere where the supply chain always is stabilized and especially more on the material side, raw material side, it's way more stable than what it was during the COVID years. Over there, we didn't increase. We are keeping on the opposite. Despite the fact that we are increasing revenue, we are not increasing purchase and inventory, in some cases, even went down. We are just increasing the inventory turns. I think that the key the key challenges is really on the parts delivery. When we need to buy parts from the OEMs in order to perform the work, whether it's APUs or learning gears. Over there, we there are still major challenges. With very long lead times and unpredictable deliveries. And over there, we made a strategic decision to to invest a lot in order to be ready for the growth.

So, you know, if I have to split between materials and parts and components, materials is pretty stable. Still, the the lead times are still not to where they used to be before COVID, but getting there. On over there, we are not increasing. On the opposite increasing on the parts, OEM parts, to support to support engines or lending gears. Still, pretty much a challenge with very long lead time and and lack lack of consistency, if you will, in the in the in the deliveries.

Got it. And then and then just, you know, looking at the launch and the new APU capability, here in '25, what does the demand side of that equation look like? Or how should we think about how you guys are going after know, some of those programs? I mean, you looking at the larger ones? Do you think we'll see smaller ones and more incrementally? Just trying to understand how we might, you know, visually see the APU opportunity evolve over '25.

So I I would say I I said the following. You know, I I I split the answer into two sections. First of all, there is a plenty of challenges that airlines are experiencing around the world with availability of of these engines. With the supply chain challenges and with the ramp up, that that is required by the and many competitors still many of our competitors still struggling to ramp up the rate required. There's a lot of demand. I would say we see a lot of interest in either already being an active RFPs or planning to open RFPs. And or planning to figure out solutions to how to over the challenges that the airlines have despite of the fact that they are locked into existing contracts. So there is a lot of demand and of activity around, you know, the way we see a very large funnel of opportunities You know, we are a newcomer into the into this engine, and we are going to win on RFPs. But I think that going after very large RFPs at this point will we are trying, but I don't know that I can say, yes. We are going to win major, major very large RFPs.

Being a newcomer and into into this game. I think we are going to more focus on a small to medium sized RF RFPs from airlines that actually not just in the future. We are already doing it, and we are now in active process on several of them. So if you think about it, you know, small small airlines to medium sized airlines are more on the sweet spot for us. For for this year, I would say.

Yeah.

And and and then the comments on the landing gear cycle, you know, how should we think about that? And when do you think we really see that starting to get engage?

So you saw the beginning in q four, and we expect it to continue this year. The full you know, the peak the peak is expected in '26 to '28. But we we we are expecting substantial growth this year. And and it will get to maximum demand next year and, again, '26 to '28.

And then and then just kind of more of a general question. Obviously, you guys have you know, great penetrating story here, but what's your sense of the overall MRO market you know, just given some of the macro comments out there?

So I think that since the industry is still in recovery and and with all the supply chain challenges, we see a very strong demand. I think that it would take time before MRO will catch up. And if you look at what the large the larger companies and the industries are publishing, they are talking about the about catching up at the end of this year sometime in '26. So while maybe there is a little bit of concern the airline side that we are hearing, maybe a little bit of softening on the flight side, but there is so much catch up to do. And that for the foreseeing future, we don't see any in any decrease in demand on the opposite. [indiscernible] You for the time.

Thank you. We're going to move to the next question. The next question is from Sergei Glyninov. Sergei, the line is the line is open. Yeah.

Hello, everyone. And let's follow on, say, congratulation for another successful quarter. So I I have a couple of questions. And first of all, what's the book to bill ratio is now and, what the time period does it take to convert sole backlog to revenue?

So the the book to bill ratio is over one, obviously, because you see that not only that we increased revenue, we increased the backlog more you have to remember that when we operate, as time goes by, we are from the backlog and the value of the long term agreement. But we are replacing it with more new orders and new contracts in a larger amount than what we were able to to to translate into revenues, which a great indicator for the future growth that we are expecting to see. On the on the OEM side, regarding the second question. On the OEM side, these are very long term We are under long term contracts. And what you see or what we recognize in the in in the in the POs, it's either the value of the contract for the coming few years or when the OEM is actually giving us the POs, the actual POs for the coming twelve to eighteen months, we replace the the contract value into the actual POs. So on the OEM side, the next twelve to eighteen months is already covered with actual POs, which is part of the number. And then for the for the coming few years, it's based on the on the aircraft manufacturer production plan.

On them, and that's or take 30% of the business, 32% of the business last year. On the MRO side, typically, contracts are between three to five years. And so we take the the airline historical data of how much replacement and how much overall spend they have per year. Times the contract remaining contract time, and that's what we book. And and and we need to remember that give or take 40% it depends. It's changing, but about 40 of the of the revenue comes from noncontractual customers. And so that's the last portion because when we actually get the PO from a customer or we get an actual asset for a repair on the aftermarket side, MRO side. Then, obviously, we add the value the expected value into the into the calculation. So let's call it 40% is very short We got something. We have to produce it in the coming few months. The other 60% based on contract, it's typically three to five years contracts on the MRO, and way longer contracts on the on the OEM with actual POs for the coming twelve to eighteen months.

Okay. Got the same, Sindh. The next one is APU projection is pretty clear, but was about the thermal solutions. What revenue growth rate do you expect next two to three years? Maybe you know, on the on the thermal solutions, first of all, we expect to continue growing. We have a huge advantage of the thermal solution. I believe that we are are we we've been a very long term partner of the large OEM. We tier one to Boeing. We are tier one to Textron on most of their fleet. We are tier one to Embraer. Also produce thermal components to system manufacturers. We are under very long contracts. And as long as the as the OEM continue to recover their their production, we we we expect to see more and more POs. We already see an increase for this year. From the OEMs. That's on that's on that side. On the aftermarket side, the MRO side, TAT is may one of the leading companies in the industry globally. If not the largest, We had great performance. We made huge of of improvements over the last two, three years. We made huge investment in in capacity and production line, dramatically increasing our capabilities in in our facility in Tolstoy, Oklahoma.

And as time goes by, we win more and more business. And we are very competitive, and, and we are very happy with our growth, expecting to continue.

Yeah. Sounds great. And I think the statement on the last call was about EBITDA margin above 15%. Are you still on the track of exceeding 15% EBITDA margin in 2025?

So we are are not providing focus, but you can see that I'm very consistent. And thank you for reminding me. I I definitely internally, as I said last time, I believe that the company and our type of business if I'm looking at our competitors, best in class needs to be what I consider to be best in class needs to be above 25% gross margin and above 15% EBITDA. And you can see the solid trends in this direction continuing. We are investing Actually, when you look at you were here with us internally, you're looking at our focus for this year. We placed profitability improvement and continuing the the improvement in efficiency and reducing cost at the higher priority than just increasing the top line. We really want to make a lot effort to get to the point that we have a strong engine that generates good results, with very high margins. So so we know that when we increase the the revenue, we are we are going to enjoy it. So definitely in the right direction, and hoping to get there as fast as possible.

Yeah. Sounds great. And the next one, what is your long term revenue structure outlook breaking it down into thermal, APU, landing gear, etcetera? It's it's really interesting because we see that APU is increasing and now you mentioned that landing gear revenue, the will slow down after 2028 if I as far as I understood. Yeah. So put a little bit colors about about that. Thank you.

So I think that for the year of for the coming years, we will see we're expecting to see a growth in all of the in all of the [indiscernible] Heat exchanges, APU lending, and also the trading and the leasing. We believe that the APU will be a stronger growth engines than than the other given the new contract and the size of the market. But as I said before, we're expecting growth in all of the segments in the coming years.

Okay. Thank you. And the last one is a little bit about Lenging. Engine j. Yeah. E e j at 175 is [indiscernible] Moreover, we saw a big deal purchasing by American Airlines of new ones that may bring a lot of work ahead for the TAT. But do you plan to get new authorization of another business or regional jets I'm Sergey, I'm not sure that expecting or expecting to any other authorization on top of the agents. That's It's not some oh, okay. It's not something that currently is on the in on our road map for this year. So right now, in in the road map for this year, it's we really focus on increasing the the capacity to meet the demand on the existing platforms.

Okay. Got it. And that's all from me. Thanks a lot, and wish you all the best to you.

Thank you. Thank you very much. Thank you, Sergei.

Thank you, Sergei. And then now we're gonna move to take a question that was typed in. This one is from Jonathan Sigman. First, congratulating us on the continued positive results during these challenging supply conditions He's asking for us to comment on pricing trends, that our customers are paying for our services. You know, is it increasing, changing year over year?

So, is it, you know, a general thing, we have two types of customers. We have the contractual customers and over their pricing our pricing escalations are predetermined with formulas typically tied to indexes. Material indexes, and labor indexes. So per per the indexes, the prices are changing on an annual base, and, obviously, they were adjusted also going into 25. According to the relevant indexes. And then we have the noncontractual customers where it it's a little bit more tricky. You know? There are considerations and competitive considerations and and, obviously, we want to make sure that the the prices are going to enable us to to maintain the On the other hand, we we we want we we also want to make sure that we are not going to be disadvantaged, being more expensive than competition. So, obviously, it's a more per case per case discussion, but I think that we are we are we are positioned well from the pricing from 2025 pricing to continue and enjoy the margin that we that we saw last year.

There are no more questions in the queue. With that, I'd like to turn the call back over to Ygal for closing remarks. [indiscernible] So one second. So you know, we it is it's a summary of everything. Are very proud in the results, and we are we're well positioned to continue and and to go company in twenty twenty five. The demand is strong. We see a lot of interest in, you know, coming our way from new [indiscernible] Agreements that we have signed with the large OEMs are continued to drive our growth and and all in all, you know, I didn't mention the leasing and trading that growing, especially in times where the industry is struggling. So all in all, we we are very optimistic about the the the the potential to continue and to grow the business. I'd like to say that while I would said before, we in in in the type of business that we are and in the last up until now, in the last two years, we've been every quarter focusing on the quarter, and it was really quarter quarter discussion. That we need to start looking at the business more on an annual year to year growth.

You see it from '23 to '24. There may be changes and fluctuations from quarter to quarter. We are the unpredictability on the MRO side we don't have a good control on what will come and when will come. Even the airline don't know. Most of the maintenance that we do is not predetermined with exception of the landing gear, which is known in advance and planned months and months in advance, all the other product lines, maintenance is per condition. So as long as the unit is working well on wing, they are not dismantling and sending sending it to overall. So there are fluctuations. There are also budgetary decisions that airlines are making some they want to to be more profitable in cost cut cost on a certain quarter, so they don't send their components for maintenance. The following quarter, they are they can bombard you with the all the units that they were accumulating for many months.

So you know, we we can see variation between the quarters, when we look at the full year, an expectation for '25 comparing to '24, we are well positioned for another very strong year. I'd like to use this opportunity and thank the participation in this call for taking the time to join us today and for the trust and partnership with our company. And looking forward to talk to you in the future and see you in conference and answer any questions that you have. [indiscernible] Very much, everybody.

Matt, back to you.

That is the conclusion of the call. Thank you all for joining us. You may now disconnect your lines.