On Wednesday, TAT Techs (NASDAQ:TATT) discussed second-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
TAT Technologies reported a record second quarter in 2026 with a 23% year-over-year revenue increase, reaching $52.9 million, driven by strong demand and improved supply chain conditions.
The company expanded its strategic relationship with Honeywell Aerospace, becoming the sole authorized distributor for certain APU spare parts and extending its MRO license to 2036.
Net income rose to $8.1 million compared to $3.4 million in Q2 2025, including a one-time gain; excluding this, net income was $4.6 million.
TAT Technologies is pursuing M&A opportunities to enhance growth and broaden its platform, supported by a new $100 million revolving credit line.
Despite improvements, supply chain issues and foreign exchange impacts continue to pose challenges, affecting profit margins and operational costs.
The company remains optimistic about future growth, supported by a record $650 million backlog and improving supply chain conditions.
Full Transcript
Matt Schessler, FNKIR (Investor Relations)
Good morning and thank you for joining the TAT Technologies second quarter 2026 earnings conference call. This call is being recorded. My name is Matt Schessler with FNKIR, a U.S.-based investor relations firm supporting Eran Younger, TAT Techs' Head of Investor Relations. Joining me today are Igal Zamir, TAT Techs' President and CEO, and Ehud Ben Yair, TAT Techs' CFO. Before we begin, I'd like to remind you that certain statements made on this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.
These statements are based on current expectations and assumptions and involve risks and uncertainties that could cause actual results to differ materially. Additional information regarding these risks and uncertainties can be found in our filings with the SEC, including our most recent Form 20-F. TAT Techs assumes no obligation to update forward-looking statements except as required by law. Investors are cautioned not to place undue reliance on these forward-looking statements.
During this call we may disclose certain non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are available in our Earnings Release issued earlier today and in our Form 6-K filed with the SEC. And with that I'll turn the call over to Igal.
Igal Zamir — CEO
Thank you, Matt. Good morning, everybody, and thank you for joining us. We appreciate your continued interest in TAT Techs. The strong second quarter marked an important inflection point for TAT Techs. We delivered another record quarter, converting strong demand into the highest backlog in our history, and grew revenue by nearly 23%. Improving supply chain conditions allowed us to convert previously constrained customers' demand into revenue, further bolstering our strong performance while continuing to expand profitability and grow our record backlog.
TAT Techs' competitive position continues to strengthen. We are becoming an increasingly important aftermarket partner to airlines, OEM and MRO providers, leveraging the breadth of our capabilities, the quality of our execution, and long-standing relationships across the aviation ecosystem. An important milestone this quarter was the expansion of our strategic relationship with Honeywell Aerospace. We are now Honeywell's sole global authorized distributor for spare parts for the 331200250 APU platform.
We also extended our MRO license for that platform to 2036 and acquired three Honeywell Aerospace 131.9A APUs to expand our trading and leasing business. The expanded Honeywell agreement adds a distribution capability we didn't have on this platform before. Historically, we've supported the 331200250 platform through MRO and service alone, and now we are also a parts supplier, giving operators, lessors and MRO partners one source across the full lifecycle, from parts to repairs and return.
Also, extending the agreement to 2036 further strengthened the long-term visibility and secured the profitability of this important business while reinforcing one of our most valuable OEM relationships. When it comes to the industry, commercial aviation fundamentals remain exceptionally healthy. Aircraft are staying in service longer than historically known, as utilization rates are high and operators continue to prioritize reliable aftermarket support.
These trends continue to support healthy demand across our repairs, overhaul and components business. While supply chain conditions have improved significantly, they have not fully normalized. We will continue to prioritize customer support even when that requires targeted inventory investment or higher procurement cost. Although these actions have somewhat dampened our profitability gains in the short term, they help keep the aircraft in service and reinforce our reputation as a trusted aftermarket partner.
We expect inventory requirements to become more efficient as the supply chain continues to improve. We believe that investments we are making today will strengthen customer relationships, expand future business opportunities and create long-term value for shareholders. On the strategic priorities and M&A front, M&A remains an important component of our long-term growth strategy. We see acquisitions as a way to expand our MRO capability, strengthen our thermal system business and broaden our platform portfolio, and finally establish a greater presence in geographies that bring us closer to customers.
These opportunities have the potential to enhance our competitive position while expanding our relevance across the global aviation aftermarket. We believe that we are well positioned to execute this strategy. Our strong balance sheet provides the financial flexibility to pursue acquisitions, while our operating platforms and integration capabilities enable us to successfully incorporate complementary businesses. As always, we remain disciplined on valuations and strategic fit, and we will not pursue acquisitions simply for the sake of growth.
Our M&A efforts continue to move front and center. We have built a robust pipeline of potential acquisition targets, completed initial due diligence on a number of opportunities, and are actively evaluating them. M&A is becoming an important focus of our team, reflecting both the quality of the opportunities we are seeing and our commitment to execute this important element of our long-term growth strategy. In terms of the outlook for the rest of the year, our performance in the second quarter and the first six months of 2026 demonstrates the progress we have made and the strong position TAT Techs occupies in the industry.
Customer demand remains exceptionally strong, with our record backlog of $650 million providing excellent visibility into future revenue. Simultaneously, supply chain conditions continue to improve, giving us increasing confidence in our ability to convert our record backlog into revenue while maintaining service levels to our customers. Building on the existing relationship, we continue to strengthen our competitive position through expanding OEM relationships and broader platform coverage, highlighted by the recent Honeywell agreement which enhances our service offering while extending an important long-term partnership through 2036.
Finally, our strong balance sheet provides the financial flexibility for strategic acquisitions that can further expand our capabilities and addressable market. Taken together, these factors reinforce our confidence in TAT Techs' ability to continue delivering profitable growth while creating long-term value for our shareholders. With that, I will turn the call over to Ehud for a more detailed review of the financial results.
Ehud Ben Yair — CFO
Thank you, Igal, and good morning, everyone. Good afternoon for the guys in Israel. As Igal noted, the second quarter benefited from strong demand and the record backlog. Also, the improvement in the supply chain environment enabled us to convert a significant portion of work into revenue as supply constraints eased. We have won several new contracts. We are now starting to see the benefit of these wins following through our financials. All in all, it was a great quarter.
That said, while profit margin improved, our operating leverage would have been higher if not for some ongoing supply chain issues and weaker exchange rate of the US dollar against the Israeli shekel. Second quarter revenue was $52.9 million compared to $43.1 million in the second quarter of 2025, an increase of nearly 23%. All product segments contributed to the growth in this quarter. Demand remains exceptionally strong as reflected in a record backlog and long-term agreements, which increased to a record of $615 million at the end of June 30, 2026.
Gross profit increased by 23% year over year to $13.3 million, with gross margin remaining about 25%. This reflected healthy pricing and operating execution despite continued supply chain inefficiencies that increased procurement cost in certain orders. We are closely monitoring the lingering supply chain issues which are impacting revenue growth. While we continue to maintain full expense levels for this segment, we still have low visibility on when supply chain issues within this segment will be resolved.
Operating income was $5.6 million, or 10.6% of revenue, compared to $4.4 million, or 10.3% of revenue, in the second quarter of 2025. With parts availability in certain areas of our business remaining challenging, we have continued to prioritize customer delivery schedules by securing certain components at higher cost when necessary. Absent these ongoing supply chain challenges, our margin expansion would have been even stronger. We continue to invest in the company's growth, infrastructure, and M&A capabilities.
This led to an increase of SG&A expenses. We also continue to invest in development of future thermal systems, resulting in modestly higher R&D expenses. Net income was $8.1 million compared to $3.4 million in the second quarter of 2025. Earnings per share were $0.61 compared to $0.30 in the second quarter of 2025. The second quarter of 2026 included a nonrecurring one-time gross gain of approximately $4.3 million from the sale of a minority interest in an unconsolidated entity and a nonrecurring charge of $900,000 related to tax expenses.
The net impact was $3.4 million on the net profit. Excluding the nonrecurring gain from the minority interest sale, net income was $4.6 million, or $0.35 per share. The foreign exchange of USD against the Israeli shekel was a headwind in the second quarter of 2026. The strength of the shekel to the US dollar during Q2 led to foreign exchange losses of over $600,000. We are working with our customers and suppliers on finding solutions to these issues without harming the flow of operation in Israel.
Adjusted EBITDA, excluding the one-time gain, was $7.4 million, or 14% of revenue, compared to $6.1 million, or 14% of revenue, in the second quarter of 2025. For the cash, cash used in operating activity was $0.6 million compared to $7 million of positive cash flow in the second quarter of 2025. A portion of the revenue that we recognized had not yet converted to cash collection by quarter end, and we expect to convert during the third quarter. Working capital requirements are expected to remain elevated in the middle term as we support the extended Honeywell distribution agreement through strategic inventory investments.
We view these investments as an attractive use of capital that supports future revenue growth. Briefly summarizing the results for the first six months of 2026, revenue increased by 10.4% compared to the same period in 2025 and reached $94.1 million. Gross profit increased by 12.4% to $23.4 million. This represents 24.8% gross margin, up approximately 40 basis points year over year. Operating income was flat at $8.6 million. Net income, which included a $3.4 million one-time benefit, increased by 58.1% to $11.5 million, and excluding the nonrecurring benefit, net income would have increased approximately by 11% to $8.1 million.
The earnings per share inclusive of the one-time gain were $0.87 versus $0.64. The one-time gain represented approximately $0.26 in the earnings per share in the current period. Adjusted EBITDA, excluding the one-time gain, increased by 4.1% to $12.3 million, or 13.1% EBITDA margin. For the balance sheet, our balance sheet remains a competitive advantage. We ended the quarter with net cash of $43 million with a 0.2 debt-to-cash ratio and 0.43 debt-to-last-four-quarters EBITDA ratio.
We also recently secured a new $100 million, five-year revolving line of credit with several US-based banks, giving us significant flexibility to support our M&A strategy and future growth of the company. Diving into the product line, Heat Exchangers revenue increased by 7.8% in the second quarter of 2026 and 4.2% in the first half compared to the same period last year. Heat Exchanger business is both OEM and MRO, and the growth is single digit and steady according to our expectation.
In APU this quarter, results are affected by the supply chain recovery, as communicated on the previous earnings call, as well as by new long-term contract wins. We expect to continue the positive trend. Overall, this product line grew by 22.2% in the first half of 2026 despite the supply chain impact. Trading and leasing increased by 17% this quarter with several good trades and steady revenue from leasing activities, which will now benefit from three additional 131-9A engines.
To summarize, the backlog is at record level. We announced two new and important contracts with APU customers that involve both the legacy platform and the new platform. Gross margins continue to be stable at about 25%, and the balance sheet is positioned to support our growth strategy. The supply chain is improving and incremental growth, and we are very optimistic about TAT Techs' future in general and especially for 2026 results in particular.
And with that I will turn the call back to Igal.
Igal Zamir — CEO
Thank you, Ehud. Before we move to questions, I would like to thank our employees around the world. Their professionalism, especially the close coordination with our customers and the suppliers this quarter, is what makes results like this possible. As we close, there are three quick takeaways. First, our fundamentals have never been stronger: customer demand keeps growing and backlog and long-term agreements reached a new record. Second, we are deepening our competitive position: our expanded relationship with Honeywell adds new distribution rights and extends our MRO authorization to 2036.
And third, our balance sheet gives us flexibility to keep growing organically, but more importantly, to support our strategic inorganic growth to create long-term value for shareholders. We are entering the second half of 2026 with more momentum, more visibility, and a stronger competitive position than at any point in our history. I would like to thank you for your continued support, and we look forward to updating you on our progress. With that, I will turn over to Matt for questions.
Matt Schessler, FNKIR (Investor Relations)
Thank you, Igal. We're now going to open up to the Q&A session from Zoom. There are two ways you can participate. The first is to raise your hand using the icon which is at the bottom of your screen. Clicking on it will alert us that you'd like to ask a question live, and we'll place you in queue and then call on you. You'll remain on mute until called on. The second way to participate in Q&A is to use the Q&A widget, which allows you to type in your question.
We will take questions from there as well, and if we run into a time constraint, someone from the IR team will follow up with you if your question is not addressed on today's call. So with that, we'll pause for a moment to build the queue. First question is from Jeff Van Sinderen at B. Riley Securities. Jeff, please go ahead. Jeff, please unmute. Jeff, please go ahead. Okay, let's move on. And Jeff, you can jump back into the queue. The next question is from Josh Sullivan at Jones Trading. Josh, please go ahead. Josh, please go ahead. Josh, please unmute your line. Operator, are you able to assist? Josh, if you can, please check your audio settings and make sure your microphone is set up to the correct device. We can't hear you.
Let's move on to the next question. The next question is from Ben Cleave at Benchmark. Ben, please go ahead.
Ben Cleave, Analyst at The Benchmark Company
All right, is that working? Can you guys hear me?
Matt Schessler, FNKIR (Investor Relations)
Yes, finally.
Ben Cleave, Analyst at The Benchmark Company
All right, well, first of all, congratulations on a very good quarter here. First, I have a question about the APU business and the parts availability dynamic. And I'm curious if you can give us a bit of context around the number of APU units that have been, you know, sitting, awaiting that parts availability to unlock. So, you know, I'm just curious if you can kind of level set us on kind of where the, you know, number of units waiting to be worked on ended, you know, 2025, kind of where that peaked at the height of the parts challenge earlier this year and kind of where that sits.
Igal Zamir — CEO
So I think— Hi, Ben, by the way. I think that if you come to the Greensboro facility, give or take, at any time you will see dozens, a couple of dozens, of APUs in the shop in different stages. Those of you who visited us when we had the analyst day in Greensboro, back then we had about 50, 60 on the shop on a certain day, random day. I think we peaked at the end of Q1 because we had several engines that were ready to ship but missing the last part that we couldn't find.
Obviously, all these engines were shipped during Q2, and the overall amount of engines kind of normalized a little bit back. But at any point, even at the end of second quarter, if you show up at the facility, you will see 40, 50 engines easy on any certain day. I would say that now it's back to normal. You need to remember that the other factor is that we won several new businesses which we published. So obviously, with new customers sending more engines, you should expect to see a gradual increase in the amount of engines in WIP, in the process.
Ben Cleave, Analyst at The Benchmark Company
Got it. Very good. That's very helpful. And then for my follow-up, and then we'll get back in queue, is also around this parts availability dynamic. I mean, I'm curious, one, the degree to which the second quarter results were kind of a positive surprise for you relative to where you thought this may end up during your first quarter call—if the parts availability kind of came in faster than you were expecting. And then also, can you give us any kind of context around your expectations here for really when this will fully normalize on a full quarter basis, if you even have that visibility.
And then I'll get back in queue.
Igal Zamir — CEO
You know, I have to split my answer into three different levels, parallel tracks. On a macro level, what we see in the industry more and more is more parts producers or raw material producers that are extending their lead times. You know, there is so much pain around on-time delivery and some of the vendors just choose to increase lead time so they can meet their turnaround expectations or delivery expectations. So that's one factor that affects you because when they announce that they have a new extended lead time, all of a sudden it creates a rupture in the system.
Some of the OEMs that were used to keep very large inventories to support shops like ours are also under pressure to reduce inventory. And they are, as a measure to reduce their inventory, reducing their level of inventories more aligned with their subcontractors' lead times and their availability or ability to react fast to changing demand. You know, we need to remember on the OEM it's fairly easy to project and to anticipate six to twelve months in advance and to provide the vendors enough lead time.
And the general saying, we don't have problems there at all. Going into your last question, OEM stabilized as a general thing, but on the MRO, because of the nature of the business and because of the large fluctuations in part consumption between different airlines, between different times of the year, there is much more volatility and that's more challenging. And now that the lead times are expanding, it's becoming more and more, more and more challenging.
The last factor is the specific crisis that we had in Q1 with one major OEM that just couldn't ship. And when we announced it first time, when we published our annual results, we said that, you know, we have a problem and we didn't see the light at the end of the tunnel. But we've been getting a lot of promises for recovery which took a lot of time. Eventually they caught up. So this major crisis that we experienced in Q1 is behind us and now we are more into general supply chain challenges in MRO in aerospace with extended lead times and the need to predict much more in advance, which is difficult — what you will need and when do we need — and be able to give the vendors enough time to react. So obviously it's a challenge and we are adjusting our systems to these new expectations and new lead times, mainly affecting landing gear and APU.
UNKNOWN Analyst
Very good, appreciate that color. Thanks for taking my questions. Congratulations again on a nice quarter. I'll get back in queue, thank you.
Matt Schessler, FNKIR (Investor Relations)
And the next question is from Alexandra Mandry from Truist. Alexandra, please go ahead, unmute your line and please go ahead.
Alexandra Mandry, Analyst at Truist
Hey, good morning. Great results and thanks for taking my questions. Hopefully you can hear me.
Igal Zamir — CEO
Yes. Hi, Alexandra.
Alexandra Mandry, Analyst at Truist
Hi. So I was wondering how your progress is on gaining content on the APU MRO for Boeing 737 and A320 series. What is your strategy to gain content there and has it shifted at all over time?
Igal Zamir — CEO
I think I remember that you asked me more or less the same question three months ago in the last call and it's pretty much the same. I think that we are gaining nice traction on the 500 engine and on the Boeing 737 and the Airbus 320. It's more of one-off opportunities than long-term contracts. And I believe that given the very competitive nature on the 131, it's expected, and I don't anticipate any major — by the way, we are competing all the time on RFPs and hoping to win some of them — but we are not targeting the large airlines as a key opportunity for growth in this platform.
Alexandra Mandry, Analyst at Truist
Okay. And then are you seeing any impacts of higher jet fuel prices or a conflict in the Middle East impacting your customers or the business? And what have you heard from your airline customers?
Igal Zamir — CEO
You know, obviously they are concerned about it, but we didn't see any impact. If you look at industry data, utilization of aircraft is in a very healthy position and the fleets are flying. It puts some constraint on the airlines' profitability, but it doesn't affect the need to keep the fleet flying, and the utilization is high, so it doesn't affect MRO. The general saying, great.
Alexandra Mandry, Analyst at Truist
Thank you.
Matt Schessler, FNKIR (Investor Relations)
Let's now ask the question from Josh Sullivan at Jones Trading, who submitted it via chat, and here's the question: With the supply chain improving here, how do we think about backlog conversion going forward? Should we expect the impressive backlog to release here, or can it extend even as you deliver more? Can it expand even as you deliver more?
Igal Zamir — CEO
I think, you know — and feel free to add after I give my two cents — but as a general saying, the vast majority of the backlog increase, the value of the long-term agreement, is long-term agreements. So we're not expecting any, I call it, miracles quarter over quarter. Obviously Q1 was a one-time dip that we recovered from. But moving forward, any new win that we publish is going to be spread over three to five years, and we're expecting a steady growth, not any major jump.
And there was a little bit of a factor this quarter of specific backlogs of engines that were stuck in the building and we couldn't bring to the finish line. Obviously we recognized them in Q2. But looking forward, I don't see — there is no expectation. Obviously things can change and we may be surprised by very large intake, but I don't have any indication today that suggests that such a jump is expected. I don't know if you have any further color to add.
Ehud Ben Yair — CFO
Yeah, I think the only thing to add is just we want to make sure that the audience and the analysts that are covering the company understand that this quarter had some catch-up on the previous quarter. So I'm suggesting for all those who are trying to understand the past and try to focus the future out of it to look at the average of the first six months of the year rather than thinking that the second quarter is the baseline for the future. Obviously the company will continue to grow, but I need to make sure that people understand exactly the results.
Matt Schessler, FNKIR (Investor Relations)
Josh's follow-up question is on M&A. He's asking what leverage levels are you comfortable with and what areas are in the strategic interest at this point? Does the extended lead-time dynamic influence your M&A thoughts? Wow.
Igal Zamir — CEO
Would you like to take the lead?
Ehud Ben Yair — CFO
Yeah. So first of all, I would say that with the M&A in general, we're doing very good progress. I think we're looking now at a very healthy funnel of very interesting opportunities. And as you guys said — it was a quote a few minutes ago — we are very disciplined about it. We define the strategic deals that we're looking for. We define what are the prices that we're willing to pay. And we are going to be very, very disciplined. But in general, I'm very encouraged with the fact that there is a very, very healthy funnel.
With regards to the other financial aspect, we communicated in the past, and this is still the plan: any deal that will be executed will be at lower multiples than we are trading, for sure. And we usually go to finance it with 50% credit and 50% equity money that will come from the capital market. We're not going to expose the company too much in terms of leverage, and we want to keep it as a healthy, healthy leverage — nothing more than that. We're not going to take any crazy risk here.
Matt Schessler, FNKIR (Investor Relations)
Let's move on. Let's move back to a live question. We have Jason Schmidt from Lake Street. Jason, please unmute your line and go ahead and ask your question.
Jason Schmidt, Analyst at Lake Street
Hey guys, thanks for taking my questions. Just curious if you could discuss the supply chain dynamics in the landing gear market. I know you had some open work orders last quarter, but given the sequential and year-over-year improvement in the landing gear business, just wondering if we should take that the supply conditions have eased there as well.
Igal Zamir — CEO
Hi, Jason. You know, before we start, let's all make sure that we remember landing gear is a very small portion of the business, about 5%. And we don't see the recovery. As we reported in the last few quarters, the dynamics that we see is a drastic extension of lead times — in some cases to more than 12 months — which has a major impact on the ability to adjust to the needs. These are very expensive parts. You need to remember that on landing gear, not like the APU where you can use USM parts and find solutions from the market, when the OEM gets stuck on landing gear, as a general saying, there is much more usage of new parts from the OEM, and when these parts are not available, then you cannot complete the work. We don't have visibility to when this trend is going to stabilize, but it really affects the landing gear business.
Jason Schmidt, Analyst at Lake Street
Understood. And then just as a follow-up, can you help us think about operating expenses and that trend through the second half of this year?
Igal Zamir — CEO
Yeah, you need to bear in mind that — and we discussed it — second half of last year we invested a lot in establishing infrastructure to support a good strategic growth and to support M&A. So we expanded our overhead at the group level in a meaningful way in the second half of last year, in preparation. And obviously everybody, you know, we are working very hard to get going with M&As and to show the first deal whenever we will be ready. And moving forward, I think that we have the infrastructure today that we need to support the growth.
And as we continue growing, it will help us improve the operating margin.
Jason Schmidt, Analyst at Lake Street
Okay, thanks a lot guys.
Matt Schessler, FNKIR (Investor Relations)
Thank you, Jason. The next question is a follow-up from Jeff Van Sinderen at B. Riley. Jeff, it's all yours.
Jeff Van Sinderen, Analyst at B. Riley
Can you guys hear me now?
Igal Zamir — CEO
Jeff. Hi, how are you?
Jeff Van Sinderen, Analyst at B. Riley
Okay. Hi, thank you. Let me add my congratulations on the strong results for the quarter. Just wanted to circle back to supply chain for a moment if we could. Wondering what still needs to happen for normalization there. Are there specific remaining bottlenecks that you're working on? And then what do you think is the time frame for normalization?
Igal Zamir — CEO
That's, I would say it's a tricky question because in most cases we are dealing with the OEMs that have their own supply chain challenges. So it's a pass-through from subcontractors to the OEMs, not something that we can definitely impact one way or the other. So we are more dependent on the OEM actions when it comes to direct material. As I said before, when it comes to direct materials or parts that we source directly from the source, it's stabilized.
When you look at all the raw materials for our thermal components, as an example, we have no issues. When it comes to parts that we are sourcing from OEMs, then these OEMs have a very large network of subcontractors and some of them are really struggling to catch up. You know, I think that we are still in the after-COVID effect. So many, many small subcontractors disappeared or shut down their business during COVID. Lots of single-source dependency.
And now they need to develop new sources and to certify them, which is a very long process in aerospace. But that's my personal thought. What we experience is the relationship with the OEM and what we are projecting to you guys is more based on what the OEMs are telling us. There is another factor that affects some of the businesses. In normal times, there is a large market of USM parts available as a substitution for OEM parts when there is a shortage of parts.
But these days, the retirement of old fleets is much slower than normal because airlines are forced to keep on flying old fleets. Everybody is searching for the USM parts, which makes it much, much more difficult to find them. And even if you find them, you pay much more than what we used to pay in the past. So that's the dynamic. We see it all over the place, and we see many of our competitors and other industry players sharing the same dynamic.
The only thing that we can do, and we've been doing it, is to drastically increase our inventory to keep much more buffers to deal with all of this.
UNKNOWN Analyst
Okay, that's really helpful. It seems like you're handling it very effectively. Could you maybe elaborate a little bit more on your expanded relationship with Honeywell and how you expect that relationship to benefit your business in the future?
Igal Zamir — CEO
You know, first of all, the relationship with Honeywell is extremely important to us. It's one of our— the APUs in general is one of our strategic product lines and represents the fastest growth opportunity for TAT Techs. We made great strides on the 321 2am 250 platform over the last few years. We are growing this type of engine very, very fast. And now, with distribution, it gives us the full— we can support the full ecosystem, not just providing MRO services and leasing, but now also supporting customers and other industry players, including competitors, with parts when they need them.
I see it as an opportunity also to grow the distribution in general. We find the distribution business very interesting, and this first deal basically, on top of being a good deal for TAT Techs and expanding the business and everything that we mentioned, is also the first time that we are going to experiment and get proficient in dealing with distribution services, which hopefully we can do more in the future. And I think that the expansion of the agreement by six more years is also a critical component, a major advantage for TAT Techs, which provides a lot of visibility and helps us to secure a profitable growth for the next ten years.
UNKNOWN Analyst
Okay, excellent. Thanks for taking my questions and continued success.
Igal Zamir — CEO
Thank you. Thank you very much.
Matt Schessler, FNKIR (Investor Relations)
We have a question that was emailed in from Sergio Heber who's asking us to walk through the working capital dynamic in the second quarter in terms of operating cash flow. And then related to that, is there anything that we should be thinking about in terms of working capital and cash flow as it relates to the expanded relationship with Honeywell?
Ehud Ben Yair — CFO
Yeah, so the operating cash flow in the second quarter of 2026 was impacted from two things mainly. One of them is a continued increase in inventory. As explained before, we started purchasing inventory for the distribution, and also we strategically invested in inventory in areas where we felt that there was a parts shortage and risk in the market in order not to be caught again with the situation that we were in in Q1 of this year. Looking forward for the rest of the year, I'm expecting inventories to continue growing.
Again, that's a strategic decision here, and it will have some impact on the working capital. On the other hand, as I mentioned before, there were several deals that were not collected during the second quarter of the year, and they were pushed for collection in Q3 for this year, which will create a positive impact on the cash flow. So all in all, just to summarize all those details, I'm expecting operating cash flow to continue trending in this way.
I'm expecting inventory to continue growing, as I said, in order to overcome two factors: the distribution deal and the lack of parts in the market. On the other hand, as the CFO of the company, I'm not concerned. We have enough cash. We are generating profits, so we have the internal resources to deal with those demands without increasing any line of credit or increasing the credit level of the company.
Matt Schessler, FNKIR (Investor Relations)
Thank you, Ehud. You know, with that, there are no more questions in the queue that haven't already been addressed at some point during the conversation today. So, with that, we are going to bring the conference call to a close. I wanted to thank everyone for joining us today, and we look forward to keeping you updated on the company's progress on future earnings calls. With that, you may now disconnect your lines.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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