TAT Technologies Ltd. (NASDAQ:TATT) Q2 2025 Earnings Call Transcript

TAT Technologies Ltd. (NASDAQ:TATT) Q2 2025 Earnings Call Transcript August 12, 2025

Matthew Chesler: 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 Eran Yunger, TAT’s Internal Head of Investor Relations. Hosting today’s call is Igal Zamir, our President and CEO; and Ehud Ben-Yair, 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 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 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.

Igal Zamir: 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 TAT Technologies’ performance and discuss our strategic direction moving forward. Q2 marked another quarter of double-digit revenue growth for TAT, 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.

Q&A Session

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 wins, 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 welcomed a new group of institutional investors, 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 fundraising 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 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 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 macroeconomic 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 dip reflects a short-term shift in customer behavior, not a change in long-term fundamentals. In response to the broader macro environment, carriers 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 APU 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 in 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 opportunities 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 continues 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 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.

Ehud Ben-Yair: 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 landing gear. 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. 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 strength 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 revaluation 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 one 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 debt, 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 volatilities and uncertainties that existed in the commercial aviation industry, by the way, by the same way that the volatility impacted 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 landing gear for exchanges, which resulted in a higher revenue indicated under the 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 landing gears segment 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 LTA 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 — has 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 contains 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 landing gear is starting now. We’re well positioned with a signed contract to serve 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 raise 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 the call for final remarks and questions.

Matthew Chesler: Thank you, Ehud. We’re now going to open up the call for the Q&A session. [Operator Instructions] The first question is going to be from Josh Sullivan at The Benchmark company.

Joshua Ward Sullivan: 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 acceleration is happening in the MRO market? Is it broad-based or any specific markets showing outsized recovery at this point?

Igal Zamir: Josh, it’s Igal. If you remember, last quarter, 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 are discretionary, meaning, that 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 out of 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 dip for a few months. And after a few months, we see the increase in intake.

It’s not specific, if I may say.

Joshua Ward Sullivan: 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?

Igal Zamir: 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 COVID 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 build 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 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.

Joshua Ward Sullivan: Great. Maybe just one last one 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?

Igal Zamir: 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 a competition. And on the new platforms, we decided to start with smaller fleets and smaller RFPs. 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 LTAs.

Matthew Chesler: The next question will come from Mike Ciarmoli at Truist.

Michael Frank Ciarmoli: 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 APUs 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.

Igal Zamir: 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 their 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, will 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 in 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. I’m going to sit on the removed engine for a couple of months. And by the way, I’m not saying that specifically what happens with each and every one 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.

Michael Frank Ciarmoli: 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 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 capabilities set? Or are you kind of staying in the wheelhouse of APUs, landing gears and the thermal management solutions?

Igal Zamir: No. I would say we want to stay close to our existing capabilities and DNA. So as a general thing, 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 — when it comes to 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, our strategy is to remove headache to our customers. We want to be meaningful to our customers and to provide 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 beyond just APUs landing gear and heat exchangers.

Michael Frank Ciarmoli: 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 gear, that was down about 7% sequentially. What should we think about those revenues going into 3Q and 4Q? And I’ll jump back in the queue.

Igal Zamir: 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.

Matthew Chesler: The next question is from Ben Klieve at Lake Street.

Benjamin David Klieve: Perfect. So congratulations on a good quarter. 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?

Igal Zamir: 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.

Benjamin David Klieve: Very good. And then a follow-up question on your M&A commentary. Can 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?

Igal Zamir: 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 multiplies 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.

Benjamin David Klieve: Got it. Very good. And then one last one 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 the relative year-over-year growth here that you’re looking at in the second half within that segment?

Igal Zamir: Yes. So there are 2 aspects here. The first aspect is the leasing side of the business. Everything, every asset that we own is leased. 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 as remove assets, assets that were removed from all the aircraft, from all 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 landing gear selling them to a customer that needs landing 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 thing, 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 purchased the asset. Now you need to overhaul 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 Ehud 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 leveraged the capacity to overhaul assets that we purchased since the beginning of the year and to put them on the shelf to sell or to exchanges, APUs exchanges landing 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.

Benjamin David Klieve: Very good. That’s very helpful commentary. Well, congratulations again on a nice quarter and really great backlog growth.

Matthew Chesler: The next question will be from Jonathan Siegmann at Stifel.

Jonathan Siegmann: 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?

Igal Zamir: Jonathan, I stated it every quarter in the last, I believe, 6, 7 quarters, we — my goal is to improve — to have a 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 employee’s 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 are running the business very lean. 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.

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

Igal Zamir: Yes, definitely. And I’m not sure that they had — by the 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 — that you cut when you have concern about the outlook of your business. So that’s our interpretation of the situation.

Matthew Chesler: 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.

Igal Zamir: Yes. So the backlog includes 2 types of — its backlog and long-term value of MRO. On the OEM side, it’s backlog. These are confirmed POs that we received from our customers. And on the MRO, when every contract that we signed has — based on the customer forecast, we assigned the value that we expect — the revenue value that we expect to see from the customer. We actually update this value on an annual basis 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, accessories, 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 aircraft 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.

Matthew Chesler: 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 I respectfully appreciate the submission of those questions. But hopefully, you got the answers you needed. 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.

Igal Zamir: So basically, just as a conclusion of this call, first of all, thank you for joining us. This quarter was another milestone for TAT, reflecting the benefits of our diversified offer to our customers 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.

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