TAT Technologies Ltd. — FY2021 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a quarterly filing; the supplied filing does not provide separate Q4 results. Financial statements are audited and prepared under U.S. GAAP, in U.S. dollars.
Business context
TAT supplies thermal-management products and aerospace MRO services to commercial and military aviation and ground-defense markets. Its four operating areas are OEM heat-transfer solutions and aviation accessories; heat-transfer MRO and OEM through Limco; aviation-component MRO, including APUs and landing gear, through Piedmont; and jet-engine-component overhaul and coating through Turbochrome. The company reported 413 employees and more than 500 customers worldwide at year-end.
Financial performance and liquidity
| Metric (US$ millions, except margins and per-share data) | FY2021 | FY2020 |
|---|---|---|
| Revenue | 77.97 | 75.36 |
| Gross profit / gross margin | 11.27 / 14.5% | 8.44 / 11.2% |
| Operating loss | (4.04) | (4.05) |
| Net loss | (3.56) | (5.33) |
| Basic and diluted loss per share | (0.40) | (0.60) |
| Operating cash flow | (2.27) | 5.95 |
| Capital expenditures | 16.1 | 11.0 |
| Cash and cash equivalents at year-end | 12.87 | 24.13 |
| Working capital | 47.40 | 54.26 |
| Total assets / shareholders’ equity | 110.83 / 76.78 | 116.12 / 80.28 |
Revenue increased 3.3% year over year. Product revenue was $25.87 million and service revenue was $52.10 million. Operating expenses included $1.76 million of restructuring costs; reported operating loss was essentially unchanged from 2020. The 2021 net loss includes a $0.43 million gain from discontinued operations, compared with a $1.85 million discontinued-operation loss in 2020.
Cash used in investing activities was $15.64 million, mainly reflecting $16.25 million of property and equipment purchases and $0.56 million of intangible-asset purchases, partly offset by asset-sale proceeds. Financing activities provided $6.04 million. Year-end current assets were $71.98 million and current liabilities $24.58 million. Long-term loans were $5.98 million, current maturities of long-term loans $0.69 million, and bank credit lines $6.01 million. The filing reports no material off-balance-sheet arrangements.
Changes versus prior year
- Gross margin improved to 14.5% from 11.2%, which management attributed in part to cost reductions and government assistance, including $3.6 million of grants recognized against costs and forgiveness of $1.4 million of PPP debt recognized as a grant.
- Aviation-component MRO revenue rose 6.4% to $33.23 million, supported by the new APU leasing activity. Heat-transfer MRO and OEM revenue fell 9.6% to $18.85 million; OEM heat-transfer and accessories revenue was broadly flat at $25.98 million.
- Operating cash flow swung from $5.95 million provided to $2.27 million used, while capital spending rose to $16.1 million. Cash declined by $11.1 million during the year.
- The company recorded $1.8 million of restructuring expenses, including employee costs and asset impairment. It also recorded $1.2 million of accelerated depreciation in cost of sales due to revised useful lives for Gedera leasehold improvements.
- Turbochrome continued phasing out JT8D engine-blade reconditioning, a discontinued operation. TAT reported a $0.43 million gain from discontinued operations in 2021, including recovery and sale of previously written-off receivables and inventory.
Outlook, management commentary and risks
Management said cash balances and expected operating cash flows should fund requirements for at least 12 months from the financial-statement issuance date. It did not provide numerical revenue or earnings guidance. The restructuring plan, announced in March 2021, moves activity from the leased Gedera site to Tulsa, Oklahoma, and Kiryat Gat, Israel, with the aim of consolidating heat-exchanger activity in the United States, improving operating flow and lowering fixed costs. Gedera’s lease termination was agreed in January 2022, with the company expected to vacate by March 31, 2022.
Year-end backlog comprised $38 million of purchase orders and an estimated $257 million under long-term agreements without issued purchase orders; the filing cautions that these agreements do not obligate customers to buy. Key risks include continued COVID-19 effects on aviation demand, supply shortages and inflation, dependence on major customers and limited suppliers, fixed-price contract cost exposure, export approvals and aerospace certifications, inventory valuation, foreign-exchange movements, and geopolitical and operational risks in Israel. Five customers represented 27.8% of 2021 revenue; one customer represented 12.8%.
The independent auditor issued an unqualified opinion on the financial statements and identified inventory valuation as a critical audit matter. Management concluded internal control over financial reporting was effective; the auditor did not provide an attestation on those controls.
Most important facts for investors to verify
- Whether the Tulsa and Kiryat Gat transfers were completed as planned, and whether expected cost savings and operational benefits materialize.
- How much of the $257 million agreement-based backlog converts into purchase orders, revenue and cash collection.
- Whether operating cash flow recovers after the 2021 outflow and elevated capital spending, and how cash, bank credit lines and loan repayments evolve.
- The sustainability of reported margin improvement given government grants, PPP forgiveness, restructuring and accelerated depreciation effects.
- Inventory quality and reserve adequacy: inventory was $41.00 million, and the auditor highlighted obsolescence and demand assumptions as a critical audit matter.
- Customer and supplier concentration, including the 12.8% customer exposure and dependence on sole-source components.
- Progress in replacing discontinued JT8D activity with newer-engine capabilities and maintaining required regulatory and export approvals.