TAT Technologies Ltd. — FY2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. Financial statements are audited and prepared under U.S. GAAP; amounts below are in U.S. dollars unless stated otherwise.
Business context
TAT supplies OEM heat-transfer products and aviation accessories, and provides aerospace maintenance, repair and overhaul (MRO) services through four segments: Gedera, Limco, Piedmont and Turbochrome. The company serves commercial and military aerospace and defense customers. COVID-19 sharply reduced activity across commercial aviation and weakened demand from some customers.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $75.4 million | $97.5 million |
| Gross profit / margin | $8.4 million / 11.2% | $15.3 million / 15.7% |
| Operating income (loss) | $(4.0) million | $2.6 million |
| Net income (loss) | $(5.3) million | $0.8 million |
| Net loss per share | $(0.60) | Net income per share of $0.10 |
| Cash provided by operating activities | $5.9 million | $3.6 million |
| Cash used in investing activities | $(5.4) million | $(3.3) million |
| Cash and cash equivalents at year-end | $24.1 million | $16.0 million |
| Working capital | $54.3 million | $62.9 million |
| Total assets / shareholders’ equity | $116.1 million / $80.3 million | $114.7 million / $85.4 million |
Revenue fell 22.7%. Services revenue was $52.6 million and product revenue was $22.7 million. Segment revenue was $26.1 million for OEM heat-transfer solutions and aviation accessories, $20.8 million for heat-transfer MRO and OEM, $31.2 million for aviation-component MRO, and $3.5 million for jet-engine overhaul and coating.
Year-end borrowings included approximately $5.0 million of loans and a $3.0 million U.S. bank credit line; operating lease liabilities were $7.4 million. The company reported $3.4 million of Israeli-government-guaranteed loans at 3.1%, with installments scheduled from June 2021 through May 2025. Of a roughly $3.1 million U.S. PPP loan, $1.7 million was recognized as a grant and $1.4 million remained outstanding, subject to SBA review. The U.S. credit line carries 3.6% interest and financial covenants, including positive EBITDA, a minimum tangible-net-worth-to-funded-debt ratio and minimum eligible receivables.
Material changes versus FY2019
- Gross margin declined as revenue contracted faster than costs; management attributed this partly to fixed costs that could not be reduced proportionately.
- Heat-transfer MRO and OEM revenue declined 39.5%; aviation-component MRO declined 19.4%; jet-engine overhaul and coating declined 14.6%. OEM heat-transfer and aviation-accessory revenue was comparatively steady.
- Operating results moved from $2.6 million income to a $4.0 million loss. The company recorded a $1.5 million tax benefit, but this did not prevent a $5.3 million net loss.
- Operating cash flow increased to $5.9 million, helped substantially by lower receivables and inventory. Investing outflows included $3.9 million of property and equipment purchases and $1.5 million of intangible-asset purchases.
- Capital expenditures were approximately $11.0 million, versus $3.8 million in 2019. Shareholders’ equity declined by about $5.1 million.
Outlook, management commentary and risks
- Management said the pandemic’s financial impact could not yet be reasonably estimated. It reported cost reductions, including headcount reductions, and said cash and expected operating cash flow should cover requirements for at least 12 months from issuance of the financial statements.
- For 2021, TAT planned to move activity from its leased Gedera facility to facilities in Tulsa, Oklahoma, and Kiryat Gat, Israel, to reduce fixed costs and consolidate heat-exchanger-core activity. The filing does not quantify expected savings, implementation costs or timing beyond the 2021 plan.
- In June 2020, TAT discontinued Turbochrome’s JT8D engine-blade reconditioning activity and classified it as discontinued operations. FY2020 discontinued-operation loss was $1.8 million, including a $1.4 million loss on disposal and asset write-offs. Management said the strategic focus is on capabilities for newer engine types.
- Piedmont stopped servicing the CRJ platform and recorded about $0.5 million of asset impairment related to the CRJ landing-gear operation. A February 2021 inventory-sale agreement related to the exit was below book value by $0.45 million; the filing says an impairment was recorded.
- Inventory was $41.2 million at year-end, and the auditor identified inventory obsolescence valuation as a critical audit matter because estimates depend on future demand and market conditions. FY2020 slow-inventory write-offs were $0.8 million.
- Backlog comprised $38 million in purchase orders and $185 million estimated under long-term agreements. The latter are not legally binding customer purchase commitments, and backlog may be delayed, reduced or cancelled.
- Five customers represented approximately 24.6% of revenue; government sales were about 8.1%. Key risks include continued aerospace weakness, fixed costs and fixed-price contracts, customer and supplier concentration, export approvals and certification requirements, currency movements, and inventory obsolescence.
- Management assessed internal control over financial reporting as effective; the independent auditor did not provide an attestation on internal controls. No material off-balance-sheet arrangements were reported. The filing also states that loan terms bar dividend distributions for five years.
Most important facts for investors to verify
- Whether aviation demand and segment revenues recovered after year-end, and whether the planned facility consolidation delivered measurable savings without disrupting operations.
- The status of the remaining PPP balance and SBA review, the credit-line renewal and covenant compliance, and the company’s debt and liquidity needs.
- Whether the $185 million frame-agreement backlog converts into firm orders, and whether customer concentration or cancellations materially affect expected sales.
- The assumptions supporting the $41.2 million inventory balance and any additional write-downs, including the CRJ-related inventory sale and impairment.
- Whether the strategy to replace discontinued JT8D work with newer-engine capabilities generates sufficient revenue and margin to offset lost activity.