TAT Techs Q2FY26 Results: Net profit rises 138% YoY to $8.1 million
- Revenue rose 23% YoY to $52.9 million in Q2FY26, driven by supply chain improvements.
- Net income jumped 138% to $8.1 million, boosted by a $4.3 million one-time gain.
- Adjusted net income excluding the one-time gain was $4.6 million.
- Backlog reached a record $650 million; Honeywell partnership extended to 2036.
- Operating cash flow fell to -$0.6 million due to inventory buildup and delayed collections.
*this image is generated using AI for illustrative purposes only.
TAT Technologies (NASDAQ: TATT) reported a 23% year-over-year revenue increase to $52.9 million for the second quarter of FY26, driven by improved supply chain conditions and strong demand. The company also expanded its strategic partnership with Honeywell Aerospace, securing sole distribution rights for specific APU spare parts.
Net income surged to $8.1 million from $3.4 million in the prior year period, largely aided by a one-time gain. Excluding this non-recurring item, net income was $4.6 million. The company ended the quarter with a record backlog of $650 million.
Financial Performance
Revenue growth was broad-based across all product segments. Gross profit increased 23% YoY to $13.3 million, maintaining a gross margin of approximately 25%. Operating income rose to $5.6 million, or 10.6% of revenue, compared to $4.4 million, or 10.3%, in Q2FY25.
| Metric | Q2FY26 | Q2FY25 | Change |
|---|---|---|---|
| Revenue | $52.9 million | $43.1 million | +23% |
| Gross Profit | $13.3 million | $10.8 million* | +23% |
| Operating Income | $5.6 million | $4.4 million | +27.3% |
| Net Income | $8.1 million | $3.4 million | +138.2% |
| EPS | $0.61 | $0.30 | +103.3% |
*Gross profit for Q2FY25 derived from reported 23% increase to $13.3 million.
The CFO noted that operating leverage would have been higher absent ongoing supply chain issues and foreign exchange headwinds. The strengthening Israeli shekel against the US dollar resulted in foreign exchange losses exceeding $600,000.
What the Numbers Show
The reported net income figure is significantly distorted by non-operational items. The $8.1 million net profit includes a $4.3 million one-time gross gain from the sale of a minority interest in an unconsolidated entity. After adjusting for this gain and a $900,000 tax charge, the net impact on profit was $3.4 million. This means the one-time gain accounted for approximately 53% of the total reported net income, highlighting that core operational profitability grew from $3.4 million to $4.6 million, a more modest 35% increase.
Segment Highlights
- Heat Exchangers: Revenue grew 7.8% in Q2 and 4.2% in the first half of FY26, reflecting steady single-digit growth in both OEM and MRO businesses.
- APU: Results benefited from supply chain recovery and new long-term contracts. The segment grew 22.2% in the first half of FY26 despite lingering supply chain impacts.
- Trading and Leasing: Increased 17% in the quarter, supported by steady leasing revenue and several trades. The business will now benefit from three additional 131-9A engines acquired from Honeywell.
Strategic Developments
TAT Technologies extended its MRO license for the Honeywell 331200250 APU platform to 2036 and became the sole global authorized distributor for its spare parts. This agreement adds a distribution capability previously absent from the company’s offering for this platform, allowing it to serve operators, lessors, and MRO partners across the full lifecycle.
The company remains focused on M&A as a growth strategy, supported by a new $100 million five-year revolving credit line. Management stated that acquisitions will be disciplined, targeting lower multiples than current trading levels, and financed with a mix of debt and equity.
Balance Sheet and Cash Flow
Operating cash flow turned negative at -$0.6 million, compared to positive $7 million in Q2FY25. The CFO attributed this to increased inventory investments to mitigate supply chain risks and support the new Honeywell distribution agreement, alongside delayed cash collections expected to convert in Q3.
As of June 30, 2026, TAT Techs held net cash of $43 million. The debt-to-cash ratio stood at 0.2, and the debt-to-last-four-quarters EBITDA ratio was 0.43.
How might the negative operating cash flow and increased inventory levels impact TAT Technologies' liquidity in the near term, given the reliance on delayed cash collections?
What specific criteria will management use to identify acquisition targets that trade at lower multiples than current market levels, and how quickly do they expect to deploy the new $100 million credit line?
To what extent could continued strengthening of the Israeli shekel against the US dollar erode future gross margins, and does the company have hedging strategies in place to mitigate this risk?
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