Tat Technologies Ltd Q2 FY2025 Earnings Call

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.

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. 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 business lines in 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 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, revenue 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 an 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 for 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 impacts short-term visibility. We've seen this dynamic more clearly in 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 protecting 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 diminished, even though it is sometimes delayed. 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 have 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. 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 is cautious. We are generating encouraging demand for 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 not have 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.

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 in 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 a 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 playing 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 a 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 emphasizes 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 costs are about $0.5 million per quarter. All the rest of the fluctuations are due to 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 a 47% increase year-over-year in the first 6 months of 2025. May I draw the audience's attention to the 14% EBITDA margin in Q2 of 2025? We are on the right track 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 about this bill together with our U.S. tax adviser, we are still carefully looking into it and waiting for more instructions from the IRS. It looks like we will not pay taxes in the U.S. this year 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, 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 to save about $200,000 a quarter in 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 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 is at the level of $43 million. The 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, opens 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 digits year-over-year. This is perfectly aligned with 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, just like the volatility impacted the stock market during April and May, mainly driven by the uncertainty around tariffs. The operational capacity on the MRO was switched to repair APU and landing gear for exchanges, which resulted in higher revenue indicated under the trading line of products. Starting from mid-June, the market stabilised, and we are now seeing an upward trend in intake for MRO. Therefore, I strongly recommend that investors, when analyzing the revenue by product, look at the 12-month trend per product and not focus on small fluctuations between the quarters. During the last quarter, we announced a major win on the APU side of the business, which further strengthened our midterm approach to the organic growth of the APU segment. We are certain that both MPU and landing gears segments will show growth year-over-year in line with our strategy. Regarding the backlog, backlog and NTA value continued to grow consistently. 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 win and some other small 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 have 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 contracts 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 with some other initiatives. And by this, I have concluded my report. But before handing over to the organizer, I want to take this opportunity to thank all of the existing investors and new investors that took part in the last capital raise in the secondary round for their trust and confidence in TAT and its management, 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 a great thank you to 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.

Thank you, Ehud. We will now begin the Q&A session. The first question will come from Josh Sullivan at The Benchmark company.

Congratulations on the results. Can we explore the comments about MRO acceleration? I know the quarter began with some uncertainty due to macro factors, but could you discuss where the acceleration in the MRO market is occurring? Is it widespread or are there specific markets showing significant recovery at this time?

It's Igal. Last quarter, I mentioned that we should anticipate some volatility at the end of last year. I've been with the company for nine years, and what we are experiencing this time is similar to previous instances. It's important to note that the services we offer in MRO are often discretionary, meaning airlines are not obligated to schedule repairs based on flight hours; it largely depends on their choice. Additionally, they maintain a significant spare inventory. Typically, when they perceive uncertainty, they reduce MRO work and focus on conserving cash by utilizing their spare parts. This period usually lasts for several months until they deplete their spare inventory, after which recovery and growth occur. As I pointed out earlier, aircraft are flying more than ever, and no one is reporting a decrease in flights. A large portion of the fleet is aging while airlines await new aircraft that are delayed. We anticipated this would happen in the fourth quarter of last year, and while we discussed it, it didn't materialize as expected. It wasn't evident in the first quarter, but it did show in the second quarter. I don't see any issues here; there was a temporary decline for a few months, followed by an increase in intake. It's a general trend, if I may add.

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?

I think we had 3 phases up until now in the company. The first phase started in 2022; we wanted to grow. We spent the years of COVID getting ready for growth; the real focus was on revenue growth. Then about a year later, 1.5 years later, we had a real focus on profitability, 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. Personally, I would like to build value, not just revenue. 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 an impact on cash. We feel that we are in a good position now to continue to support 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 statement, we are in the right place. Therefore, we added a couple of months ago a third tier in our evolution to really start focusing on our cash flow. I'm pleased with the results of the quarter with tighter controls, 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.

Great. Maybe just one last one on the APU strategy. You winning smaller deals, 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?

So far, it's going well for us. We're capturing more market share on the APUs that we've historically worked on, including the 767 and 757 fleets, and we're gaining more market share where we have significant advantages over the competition. For the new platforms, we initially chose to focus on smaller fleets and smaller RFPs. As I mentioned, we have won several of these since the start of the year and are currently working on more. Overall, it looks promising. While it will take time, it’s growing nicely, which is reflected in the growth of our backlog and the value of the LTAs.

The next question will come from Mike Ciarmoli at Truist.

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 maybe 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.

Sure. First of all, we observe this trend among global fleets, not just in the U.S. It's important to note that we have a significant concentration of cargo carriers. When tariffs were introduced, these carriers became concerned about the implications for their rents and freight needs, which influenced their decisions. Typically, airlines maintain about 10 to 15 spare engines at their facilities. Regarding light repairs, I have not seen that behavior; they generally expect comprehensive repairs when they send an engine for servicing. What they might do instead is hold onto their 15 spares for a couple of months. I've spoken with top executives at several of our major customers and have noticed this pattern in the past. They tend to keep their spares until they feel their inventory is getting low, at which point they send us everything, resulting in a noticeable increase in intake.

Okay. Perfect. That's 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?

No, we want to remain aligned with our existing capabilities and identity. However, we are definitely looking to broaden our scope into more mechanical systems and components rather than just growing within our current segments. Ultimately, our main goal in MRO is to alleviate challenges for our customers. We aim to be significant to our customers by providing more than just service at low prices. We want to assist them in consolidating their vendor list and enhance our offerings. As we consider acquisitions, we are focused on companies that align with our business understanding and our ability to manage and sell to customers, particularly in our initial acquisitions where we prefer a cautious and safe approach. We are certainly looking to expand beyond just APUs, landing gears, and heat exchangers.

Got it. And then just the last one 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 Q3 and Q4? And I'll jump back in the queue.

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.

The next question is from Ben Klieve at Lake Street.

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?

At this point, we are still working on them individually, and we haven't announced any significant wins yet. We have a very small number of RFPs that we won, but they are not substantial enough to warrant a separate announcement. We are still in progress with this.

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?

Maybe I'll answer it in a different way. I plan to be extremely disciplined in our approach to acquisitions. We are not going to acquire for the sake of acquiring. We will acquire if it makes sense, if it adds value to our customers, but also if it adds value to the shareholders of the company. The multiples will have to be right; 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.

Got it. Very good. And then one last one for me. The trading and leasing business, as you noted, saw 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?

Yes. There are two 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. It's not going to grow substantially because everything that we have is deployed; it's steady and continues. As long as the supply chain challenges in the industry continue, I feel that we will keep on enjoying strong demand on the leasing side. On the trading, it's a little bit more challenging. There are two factors here. First of all, our trading business is based on finding removed assets, assets that were removed from all the aircraft, from all fleets buying them, then bringing them to the shops, overhauling them, and exchanging them with customers that are out of inventory. There are two factors that make this a little bit more spotty. You cannot establish a real ongoing flow of deals, and therefore, the answering the question is very difficult. The first factor is that, in general, because of the fact that the airlines keep on flying very old platforms, there is much less turn down activity of old airplanes compared to what it used to be in the past, up until 1.5 years or 2 years ago. So it's much harder to find removed assets from tear downs to purchase. There are lots of companies, like us, dealing with trading, as you know, that we're all fighting on the same fleet, making it very difficult to find the right assets. This challenge creates fluctuations in 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 great team of employees and leaders in the trading department who are working very hard to bring in more deals and to find more assets. We definitely want to increase this business.

Very good. That's very helpful commentary. Well, congratulations again on a nice quarter and really great backlog growth.

The next question will be from Jonathan Siegmann at Stifel.

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 those impressive margins?

I have mentioned each quarter for the past six or seven quarters that my goal is to enhance profitability through effective strategies. For me, improving margins and profit takes precedence over merely increasing revenue. We have substantial initiatives in place across all locations, focusing on operational efficiency, automation, equipment enhancements, and initiatives aimed at improving employee experiences and productivity. Although we have made significant progress, many of these initiatives are still ongoing, indicating that there is further potential for improvement. There isn’t a specific one-time factor contributing to this; rather, the overall trend over the past two years reflects consistent improvement. Additionally, we focus on managing expenses efficiently. We maintain a lean operation and ensure that our operating expenses do not outpace what the business can sustain, prioritizing revenue growth to surpass expense increases and enhance margins. We are also committed to optimizing purchasing prices by working diligently within our supply chain to cut costs, identify alternative suppliers, enhance quality, and reduce production waste. All these efforts are leading to positive outcomes, and I believe we have more work ahead in the upcoming quarters.

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

Yes, definitely. I'm not representing the freight companies or cargo carriers, but there was a concern. When the tariff was introduced, they expressed serious concern about the potential impact on their business. I’m not sure if they reported a slowdown, but they acted based on those concerns. Discretionary spending is typically the first thing that gets cut when there are worries about the business outlook. That's how we interpret the situation.

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.

The backlog comprises two categories: one related to backlog and the long-term value of MRO. On the OEM side, it represents anticipated orders confirmed by our customers. For MRO, when we finalize contracts based on customer forecasts, we assign an expected revenue figure, which we update annually based on actual customer performance. Typically, MRO agreements are signed for durations of 3 to 5 years. For instance, if we announce a $40 million deal with a 5-year term, it translates to an annual revenue of $8 million over that period. On the OEM side, there are short-term projects like accessories and air conditioning systems, for which we usually receive orders and fulfill them by the end of the following year. We already have all the purchase orders for thermal components planned for 2026. Additionally, we engage in exclusive agreements with aircraft manufacturers to supply these thermal components, calculating future purchase values based on their aircraft production plans. Overall, the timeframe isn't straightforward and extends beyond just the next year; MRO contracts span 3 to 5 years, while OEM value is tied to the production of fleets continuing into the coming years.

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.

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 offering to our customers and the growth prospects that it provides our increasing strength enabling us to execute a pivotal capital market transaction that strengthens our balance sheet and optimizes our capital structure. This positions 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 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.

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