TAT Technologies Ltd. (TATT) Earnings Call Transcript & Summary

Hello. My name is Matt Chesler, and I'm a partner with FNKIR, 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'd 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 those 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 risks and other risks and uncertainties could cause TAT's 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, 2023, 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 today's press release, 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 or 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 the company uses have limitations and may differ from those used by other companies. We would now like to turn the call over to Igal.

Good afternoon, everybody, and thank you for joining us. This quarter, we marked our seventh quarter of increasing revenue and profit. We are really pleased with the results. But before we dive into the results, I'd like to take a few minutes to present the company for those of you who are not familiar with us. So about TAT, we are a leading provider of OEM and MRO services for the aviation industry. We have a long history of more than 7 decades and experience in partnership with Tier 1 aviation industry leaders. We have 3 main business lines. Thermal components, OEM and MRO, APU, MRO and landing gear MRO. We also produce other critical aviation components. In terms of revenue breakdown, 80% of our revenue comes from commercial and 20% comes from military. Our geographical revenue breakdown is 75% North America, 7% Europe, 7% Israel and the rest is in Asia Pacific. We have 3 facilities, 2 in the U.S., in Oklahoma and in North Carolina and 1 facility in Israel. The company is headquartered in Charlotte, North Carolina. Our key -- I'd like to maybe spend a few minutes talking about our growth engines and how we see the opportunities for the future. So TAT in the last 3 years, signed several strategic agreements and long-term agreements with customers that represent a substantial growth engine for the coming years. The key areas are APUs and landing gear. On the APUs, we are currently certified and ready to provide MRO services to APUs that serve the global fleet of more than 20,000 aircraft. It's in comparison to our capabilities up to mid-'20 where our global addressable market was limited to about 2,000 aircraft. In terms of market size, our addressable potential growth from about $380 million market size until mid-last year into currently potential addressable market of $2 billion. On the landing gear, we secured agreement on existing capabilities that TAT has with potential of drastically increasing our revenue as the industry grow and entering into a new overall cycle for the relevant types of landing gears early next year. Back to our results. So on top of the growth engines that I just mentioned, and before we even started really monetizing all these opportunities for growth, this year, second quarter is our seventh consecutive quarter of improving revenues and profits. We see growing demand for our products and services across all business lines as the industry recovered from Covid in combination of the fact that our -- we were able to show fast ramp-up and recovery that is helping us to secure new business. Over the last -- if you look at the over the last 2 years from mid-'22 to current, our revenue grew from about $20 million per quarter to $36 million per quarter, and our EBITDA from the range of $0.5 million per quarter to $4.4 million in the second quarter of this year. When comparing second quarter this year, to the same period last year. Year-over-year revenue grew 36%, and our EBITDA increased in 69%. More than this, when we look -- when we look in our business line and dig into the critical business line that TAT has, we are showing a fast recovery across all sections. Our thermal components grew 54% comparing to last year. Our APU business shows 48% growth year-over-year and landing gear shows 50% growth year-over-year. All in all, we are looking at a 36% growth year-over-year and kind of a steady growth quarter-by-quarter for the last 7 quarters. For more details on the numbers and our financial performance, I will forward the call to our CFO, Mr. Ehud Ben-Yair.

Thank you, Igal. Hello, everybody. My name is Ehud Ben-Yair. I'm TAT's CFO for the last 6 years. Very excited to be here. I will review the financial results of the second quarter and the first 6 months of 2024 as well as the trend of our P&L for the last second quarter since we started picking up of code period. We finished another record quarter, showing the increase in revenues and the continuous improvement in all of the profitability parameters. Diving to the numbers. So revenue in Q2 '24 went up to 36.5% compared to $26.8 million in Q2 of 2023. This is representing a 36% increase in revenue. The gross profit went up from $5.4 million in Q2 of 2023 to $8 million in Q2 2024, and it represents a 47% increase compared to the previous period. The gross margin also went up from 20.2% to 21.9% , that's an increase of 1.7 basis points compared to the previous quarter. EBITDA went up from $2.6 million to $4.35 million in Q2 2024, representing 69% increase and the EBITDA margin as well went up from 9.6% in Q2 of '23 to 11.9% in Q2 of 2024. This is representing an improvement of 2.3 basis points compared to the previous period. And last, the net income went up from $1.5 million in Q2 '23 to $2.6 million in Q2 '24, another improvement of 77% for this period. With regards to the results of the first 6 months of 2024, so revenue went up from $52 million in H1 '23 to $70.6 million in H1 of '24. This is representing a 36% increase. Gross profit went up from $9.7 million to $50 million in this period. This is representing a 55% increase. The gross margin improved from 18.6% to 21.3%. It's a 2.7 basis point improvement for this period. EBITDA went up from $4.6 million to $8 million in H1 of 2024. This is representing a 73% increase in the EBITDA. The EBITDA margin also improved from 8.9% to 11.4%. That's an improvement of 2.4 basis points for this period. And last, the net income went up from $2.1 million in H1 of 2023 to $4.7 million in H1 of 2024. That's an improvement of 122% percent compared to the previous period. I'm going to review now the last 7 quarter trends. I'll start with the revenue. So 80% of TAT's revenues are coming from the commercial aviation industry. And obviously, as part of the uptick in the industry, we also gradually grow our revenue. If you're looking at Q3 of 2022, revenues were $21 million. And now in Q2 of 2024, the revenues are $36.5 million. This is representing a 75% increase in revenues in the last almost 2 years. In terms of the gross profit, again, in the last 7 quarters, we saw an increase in the revenue and also in all other P&L elements. So gross profit went up from $3.4 million in Q3 of 2022 to $8 million this quarter. This is representing a growth of 135% in the last 7 quarters. And the gross margin itself increased from 16.4% in Q3 of 2022 to 21.1% in Q2 of '24. Another very important parameter is the operating profit. So the operating profit was negative throughout all of COVID period, but starting from Q4 of '21, we presented a positive gross profit of $950,000, which is representing a 3.8% of revenue. However, in Q2 of '24, operating profit was $2.7 million. It's a 170% increase compared to Q1 of '23. And the operating margin in Q2 '24 improved to 7.5% compared to 3.8%. Last is the net income. So again, during COVID net income was always negative starting from Q1 of '23, we first presented a positive net income of $650,000. And in Q2 of '24, the net income already declined to the level of $2.6 million, representing an interest in the net income of 300%. Last point is our backlog, which is very notable. So during COVID and before, our backlog trend around the $200 million in average. And following the increase in the demand and all the new LTA that were signed since 2021, following the strategic initiative that we took, our backlog is constantly above the $400 million, which is double the size compared to the pre-Honeywell deals that Igal just described. So by this, my update ends. For any further information, you can visit our deck on our website, tat-technologies.com or contact our IR Director. I'm returning the call to Mr. Zamir, our CEO.

So maybe just to summarize the call. TAT is on a very strong trend, building momentum and in achieving great results in all of our business segments, making good progress. We have substantial opportunities for growth. We are very excited about our growth engines and the ability to continue and improving our profitability. We also focus on our improving our performance to our customers and providing them with the best-in-class performance in aerospace. We look at OTD and the on-time delivery and the turnaround time on the MRO side. We basically started providing services to the new engine a couple of months ago. The opportunities are huge, and we focus on establishing ourselves as a key player for this market segment. And we focus on improving efficiency, continuing reducing cost and improving our margin. So all in all, a very strong outlook and looking at very large opportunities moving forward. We are going to participate in Lake Street Conference in New York City on September 12 and looking forward to seeing you there. Thank you for the participant, and we will see you again in the next quarter. Thank you very much.