TAT Technologies 2026年第三季度业绩电话会议：营收创新高与利润率扩张

核心要点

• TAT Technologies公布2026年第三季度营收达到创纪录的5560万美元，同比增长20.2%，主要受辅助动力装置（APU）、热交换器以及交易、租赁和分销业务的增长推动。
• 毛利增长48.2%至1720万美元。毛利率达到创纪录的30.9%，这得益于向高毛利业务的转型、分销收入以及运营效率的提升。
• 调整后EBITDA增长60.9%，达到创纪录的1090万美元，调整后EBITDA利润率从上年同期的14.6%提升至19.6%。
• 净利润从480万美元升至770万美元，摊薄每股收益从0.37美元增至0.58美元。
• APU业务营收增长34.4%，而交易、租赁和分销业务营收增长85.5%。这些业务与热交换器业务一道，占总营收的近85%。
• 管理层预计强劲的发展势头将延续至2026年第四季度及2027年，理由是订单增长强劲、在手订单充沛、供应链状况改善以及拥有长期客户协议。

关键财务数据

2026年前九个月，营收从1.315亿美元增长13.8%至1.496亿美元。毛利率提升250个基点至27.1%，调整后EBITDA增长47%至2740万美元，占营收的18.3%。

前九个月净利润增长58.3%至1910万美元。扣除第二季度确认的340万美元税后一次性收益，净利润约为1570万美元。摊薄每股收益增长42%至1.46美元。

业务与运营表现

APU业务仍是主要的增长推动力。第三季度营收增长34.4%，前九个月增长26.8%。管理层将这一表现归因于赢得新合同、零部件到货情况改善、产能恢复以及运营效率持续提升。

热交换器业务营收在该季度增长7.3%，今年以来累计增长5.2%。该业务同时服务于原始设备制造商（OEM）和维护修理大修（MRO）客户，依然是TAT Technologies投资组合中稳定的长期组成部分。

交易、租赁和分销业务营收在第三季度增长85.5%，今年以来累计增长42.9%。该增长反映了几笔大型交易以及新分销业务的贡献。管理层提醒称，由于大型资产和零部件交易取决于到货情况、维修时机和交易完成情况，季度业绩仍将存在波动。

起落架业务占季度营收的比例不足4%。由于零部件短缺，TAT将产能从起落架转移到了毛利率更高的APU业务。该公司从在手订单中移除了3400万美元的起落架合同，尽管季度营收创下新高，但底层在手订单基本保持稳定。

TAT在库存方面投资了1060万美元，主要是为了支持其新的分销渠道，并在零部件交货周期延长的背景下满足客户需求。该公司还将以谢克尔计价的贷款转换为以美元计价的贷款，以降低利息成本并消除相关的外汇风险敞口。

管理层展望

管理层表示，在强劲的客户需求、稳健的订单增长、长期协议以及供应链状况改善的支撑下，预计增长势头将在2026年第四季度和2027年得以延续。公司未提供具体的营收或盈利预测。

公司认为前九个月27.1%的毛利率合理反映了其近期利润率状况。管理层预计未来几个季度当前的业务结构将保持大致相似，并表示已完成的成本举措将持续带来效益。

TAT预计在耗尽其在以色列和美国的剩余税损结转额后，将于2027年开始缴纳所得税。根据当前预期，管理层预计平均企业所得税税率约为15%至19%。

管理层预计，与霍尼韦尔（Honeywell）扩展的合作关系（包括分销权和延长至2036年的MRO授权）将有助于提升盈利能力并创造更多机遇。分销业务目前对营收贡献尚不显著，但管理层表示其对利润做出了实质性贡献。

风险与关注要点

• 起落架业务继续面临零部件到货和供应链瓶颈。
• 受交易时机影响，交易、租赁和分销业务的季度业绩可能会出现大幅波动。
• 油价上涨可能会对航空公司支出造成压力，不过管理层表示刚性维护需求依然具备韧性。
• 支持分销业务所需的库存增加推高了营运资金需求，尤其是在零部件交货周期依然偏长的情况下。
• 预计剩余税损结转额的消耗将从2027年起增加TAT的现金税费负担。

分析师问答亮点

管理层将强于预期的APU业务表现归因于赢得新合同、供应链状况改善以及内部产能提升。鉴于订单增长持续强劲，管理层预计这些因素将继续构成支撑。

关于APU需求，管理层指出维护需求主要是刚性的而非可选择性的。只要机队保持飞行，预计APU维修需求就会保持稳定。

关于并购与战略扩张，TAT认为在航空航天供应链持续紧张的情况下，可用二手航材（USM）、零部件交易和分销是具有吸引力的领域。截至第三季度末，该公司杠杆率较低，并获得了一项新的1亿美元三年期循环信贷额度。

管理层未发现客户业务出现向短周期转变的趋势。长期协议继续占营收的约60%至65%，其余35%至40%来自应对短期需求的非合同客户。

业绩电话会议完整文字记录

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完整财报电话会议逐字稿

管理层陈述

Matthew Chesler

Good morning, and thank you for joining the TAT Technologies Third Quarter 2026 Earnings Conference Call. This call is being recorded. My name is Matt Chesler with FNK IR, a U.S.-based Investor Relations firm supporting Eran Yunger, TAT's Head of Investor Relations. Joining me today are Igal Zamir, TAT's President and CEO; and Ehud Ben-Yair, 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 assumes no obligation to update forward-looking statements, except as required by law, and investors are cautioned not to place undue reliance on these forward-looking statements.

During this call, we may also discuss certain non-GAAP financial 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.

With that, I'll turn the call over to Igal.

Igal Zamir

Thank you, Matt. Good morning, everyone, and thank you for joining us. We appreciate your continued interest in TAT. Q3 was an outstanding quarter for TAT. We delivered quarter revenue up 20% from last year and record adjusted EBITDA of nearly $11 million. Performance was broad-based and profitability grew faster than revenue. Our APU business continued to grow, leveraging new contracts won since the beginning of the year and the benefits of continued improvement in supply chain. Demand is robust across both APUs and heat exchangers areas, which we expect to remain the foundation of our growth.

Trading, leasing and distribution added -- meaningfully add to the record results, benefiting from strong customer demand supporting global fleets and other MROs and our expanded strategic relationship with Honeywell. Our position in the APU MRO market is strengthened by the comprehensive business model that combines MRO capabilities, trading, leasing and now distribution. This integrated approach expands the share of the overall market we can address, creates additional growth opportunities and enhance the value we deliver to our customers. It also strengthens our relationship with existing customers while making TAT an increasingly attractive partner for new customers.

Collectively, these capabilities establish meaningful and sustainable competitive advantage. Furthermore, the new distribution agreement announced in early Q3 alongside our existing MRO agreements, one of which has been recently been extended to 2036, provides a strong foundation for growth that we believe can outpace the broader industry. As we scale, we are seeing a clear improvement in our earnings power. Margin expansion was driven by revenue growth, a more favorable business mix with higher contribution from APUs and heat exchangers, the addition of trading and distribution revenue and continued improvement in operations efficiency.

This demonstrates our ability to translate incremental revenue into stronger growth and profitability as we continue to expand the business. The result reflects the strength of our competitive position in the aftermarket industry, the quality of our partner and customer relationship and the successful execution of our strategy. Demand across our core markets remain fundamentally strong, supported by favorable aftermarket dynamics and our long-term standing relationship with the leading OEMs and customers.

The third quarter clearly reflects the progress that we have made. APU is back at full run rate, trading and distribution is adding to our growth, and our cost initiatives are improving profitability. Intake across our business remains at a high level, and we are confident that the momentum will continue in Q4 and 2027. A few words about the industry. Rising oil prices raise concern about the outlook for air travel and the potential impact on airline spending. However, industry data provided encouraging indicators of continued resilience in the aviation aftermarket.

Across 6 major U.S. airlines, combined maintenance spendings increased 3% year-over-year in the third quarter to approximately $3.3 billion, with trailing 12 months spending up 4%. This suggests that despite higher fuel costs, the demand for flight is there and airlines continue to prioritize maintenance and reliability for their fleet. We are also seeing positive trend across the broader aerospace aftermarket with major industry players reporting continuing growth in engine services, parts and repairs. The industry continues to benefit from sustained aircraft utilization, favorable pricing trends and large installed base of aging aircraft that require ongoing maintenance.

While airlines are managing costs and adjusting capacity in response to fuel prices, maintenance remains essential to ensuring safe and reliable fleet operation. Any potential spending reductions are more likely to initially affect discretionary areas such as certain cabin interiors, upgrades and retrofits rather than essential maintenance activities. These industry trends are consistent with what we see -- comparing to what we are seeing across our businesses. Customer demand and intake remains strong, particularly in APU and heat exchangers, and we continue to see attractive opportunities across our MRO and trading and leasing distribution activities. Taking together the industry data and our direct customer experience reinforce our confidence in the resilience of the aftermarket and the opportunities ahead of TAT.

In terms of growth engines and outlook, we enter the final quarter of 2026 with a strong customer demand, a healthy backlog and long-term agreements and a solid financial position. Momentum is building, and we expect to finish the year on a strong note. As we continue to scale our core businesses, we expect to deliver meaningful operational leverage, sustained margin improvement and deepen our relationship with existing customers while expanding our reach to new ones.

Looking beyond 2026, we believe that TAT is well positioned to build on this momentum in 2027. Our core markets remain attractive. Our customers' relationship continue to deepen, and our expanded relationship with Honeywell strengthens our competitive position and creates additional opportunities in distribution and MRO. We believe we have a clear strategy and the financial flexibility to pursue both organic growth and strategic opportunities. We are excited about the opportunities ahead. Our focus remains on executing consistently, capitalizing on strong market demand, expanding our capabilities and delivering sustainable, profitable growth that creates long-term value for our shareholders.

With that, I will turn the call over to Ehud for a more detailed review of our financial results.

Ehud Ben-Yair

Thank you, Igal. Hello, everyone, and thank you for joining us. This was indeed a record quarter. Our third quarter results reflect growing customer demand, a more favorable product mix and the benefits of our disciplined cost management. Third quarter revenue increased by 20.2% year-over-year to a record of $55.6 million compared to $46.2 million in the third quarter of 2025. For the first 9 months of 2026, revenue increased by 13.8% to $149.6 million compared to $135.5 million (sic) [ $131.5 million ] million in the prior year period.

On top of the double-digit organic growth in revenue, profitability was a particular highlight of the quarter. Gross profit increased by 48.2% to $17.2 million, representing a record gross margin of 30.9%. This improvement reflects several positive development, capacity shift from landing gear to a higher-margin APU business, healthy trading activity, the addition of distribution and the full impact of the operational efficiencies initiatives that we discussed last quarter.

For the first 9 months, gross margin reached to 27.1%, an improvement of 250 basis points year-over-year. We believe that this year-to-date performance provides a meaningful indication of the underlying progress in our business and should be seen as a reasonable margin profile for our near-term business. Operating income was $9 million or 16.3% of revenue compared to $5.3 million or 11.4% of revenue in the third quarter of 2025. For the 9 months, operating income increased by 27.3% to a level of $17.6 million.

Our net income increased to $7.7 million compared to $4.8 million in the third quarter of 2025. Diluted earnings per share increased to $0.58 from $0.37 in the prior year quarter. For the 9 months, net income increased by 58.3% to $19.1 million. As a reminder, the second quarter included a onetime gain net of taxes of $3.4 million on the sale of an equity method asset. Excluding this nonrecurring benefit, net income for the first 9 months would have been approximately $15.7 million. Diluted earnings per share were $1.46, represent a 42% increase compared to $1.02 in the prior year period.

During the third quarter, we also converted shekel-denominated loans into U.S. dollar-denominated loans. By this, we reduced the interest rate and eliminated the foreign exchange exposure associated with the loans and the related interest expenses. This further strengthened our financial position and reduces our exposure to currency fluctuations.

For the EBITDA. Adjusted EBITDA increased by 60.9% to a record of $10.9 million or 19.6% of revenue compared to $6.8 million or 14.6% of revenue in the third quarter of '25. For the first 9 months of the year, adjusted EBITDA increased by 47% to $27.4 million or 18.3% of revenue. To summarize the profitability parameters, the gross margin and adjusted EBITDA margin puts us at the highest standard compared to our peers and competitors. For the coming quarter, our focus is on sustaining the improved profitability as we move into 2027.

Cash flow from operating activities was $3.8 million in the third quarter despite a $10.6 million investment in inventory, most of which was associated with adding the inventory needed to support the new distribution channel, which we announced last quarter. We view this inventory investment as supporting the growth of our business and our ability to serve customers throughout an expanded product offering. Our financial position remains strong, and we continue to manage our working capital and investment requirements with discipline as we grow.

With regard to taxes on income, as we have discussed previously, we expected to utilize our remaining tax losses carry forward in Israel and the United States and begin paying income taxes in 2027. Based on our current expectation, we anticipate an average corporate tax rate of approximately 15% to 19%. While this represents a change to the benefits of our historical tax attributes, it reflects the continued development of our business and our expectation of sustained profitability.

Turning into our individual product lines. We continue to see encouraging performance across our portfolio. Our APU business continued to be a standout performer. APU revenue increased by 34.4% in the quarter and 26.8% year-to-date. Overcoming supply chain challenges and the return of full operational run rate, combined with sustained customer demand has contributed meaningfully to our growth and profitability. We are encouraged by this momentum, and we expect APU to remain an important driver of our business.

In heat exchange, revenue increased by 7.3% in the third quarter and 5.2% during the first 9 months of 2026 compared to the respective period last year. This business serves both OEM and MRO customers, and we are pleased with its steady growth, which is consistent with our expectation. This segment provides a reliable long-term foundation for the company. Trading and leasing and distribution also delivered a very strong quarter with revenue increasing by 85.5%. The performance reflected several meaningful transactions during the quarter alongside the contribution from the distribution business.

Year-to-date, revenue in the segment increased by 42.9%, which provides a broader perspective on its growth trajectory. As expected, quarterly revenue can fluctuate depending on the timing of individual transactions, but we are encouraged by the ongoing demand and the additional opportunities created by our expanded product offering and customer reach. These 3 business line now accounted for nearly 85% of TAT total business.

Landing gear remains a smaller part of our portfolio, accounting for less than 4% of revenue this quarter and continues to face certain parts availability and supply chain challenges. We shifted capacity to APU until such time that landing gear supply chain issues will be resolved. Backlog at the quarter end was $577 million compared to $615 million at the end of the second quarter. The decrease reflects $34 million in landing gear contracts that we removed from the backlog due to the shortage of components to perform the work on those contracts. Excluding those contracts, backlog was essentially unchanged even as we delivered record quarter revenue.

To summarize, our 2 largest business segments continue to grow at an encouraging pace, providing a solid baseline for the business, while trading leasing and distribution provides additional growth opportunities and broaden our capabilities. We ended the quarter with net cash of $42.6 million. Our debt-to-equity ratio was 6%, and our debt to last 12 months EBITDA ratio was 0.32x, reflecting a strong financial position and a very low leverage. In addition, we secured a new $100 million 3-year revolving credit facility with several U.S.-based banks that we discussed on our last call previous quarter.

We believe the combination of our net cash position, low leverage and available credit capacity puts us in a strong position to execute our short-term working capital needs as well as our long-term strategy while maintaining financial discipline. This is particularly important as we look forward to 2027 and evaluate opportunities to expand our capabilities and create additional value for shareholders. Following an excellent third quarter, we entered the final stretch of 2026 with strong momentum and a solid foundation for continued growth. Our results also demonstrate that TAT is not only growing, but also becoming more profitable.

We believe TAT is well positioned to build on its performance in 2027, supported by strong customer relationship, attractive market opportunities, improving earning power and the financial capability to pursue both organic growth and strategic acquisition.

And with that, I will return the call back to Igal.

Igal Zamir

Thank you, Ehud. Before we move to questions, I want to thank our employees around the world. Their dedication, professionalism and close coordination with our customers and suppliers were instrumental in delivering the outstanding quarter.

As we close, I want to leave you with 3 takeaways. First, our fundamentals have never been stronger. Customer demand keeps growing and backlog and long-term agreements remains healthy. Second, we are deepening our competitive position and expanding our growth opportunities. Our APUs and heat exchangers businesses continue to perform well, while our expanded relationship with Honeywell adds new distribution rights and extended our MRO authorization to 2036. Third, we have the financial strength and strategic flexibility to keep moving forward.

Our strong balance sheet, significant liquidity and financial resources position us to invest in all our business, pursuing inorganic strategic growth and capitalize on opportunities as they emerge. We are finishing 2026 with tremendous momentum. Following this record quarter, we believe TAT is well positioned to continue growing in 2027, building on strength of the core business, our customer relationship and expanding capabilities. We are proud of what our team has accomplished, confident in the opportunities ahead and focus on translating them to opportunities -- that opportunity into sustained profitable growth for our shareholders. I want to thank you for your continued support, and we look forward to updating you on our progress.

Thank you for continued support. And with that, I will turn it into Matt for questions.

Matthew Chesler

Thank you, Igal. We're now going to open it up for the Q&A session. [Operator Instructions] With that, we'll pause for a moment to build the queue. Let's jump right in. The first question is from Jonathan Siegmann from Stifel.

分析师问答

Jonathan Siegmann

Congratulations on the very strong revenue and margins. Maybe just referring back to Q2, I recall you mentioning maybe taking the average of the first 2 months of revenue as kind of as a baseline and moderating your expectations for the second half. Clearly, Q3 was stronger on the APU side. I was just wondering if you could comment a bit more on maybe why revenue was stronger than you anticipated and could Q4 -- how we should think about Q4?

Igal Zamir

I think that it's a combination of a few factors. First of all, we announced several large wins of APU contracts since the beginning of the year, and we are seeing more and more of these contracts coming to our shop. The second thing is supply chain. The second key parameter is supply chain. We all know where we started the year in Q1 with a major challenge. And in Q2, we reported that it's -- that things are getting better and continue to get better in Q3, and I believe that they will continue doing so moving forward.

So as we stabilize our supply chain, we have the ability to bring more units to the finish line. Improving our own internal capacities and ability to bring more engines is the third factor, improving efficiency. So all in all, we see a very positive trend, which we believe that will continue because we are enjoying a very strong intake on the APUs. I hope that answered your question.

Jonathan Siegmann

Yes. And then maybe just to touch on the landing gear. You have talked about a strong cycle. It sounds like deemphasizing that, at least in the near term, the adjustment to the LTAs. Just how much of this is -- are they -- is somebody else able to get these parts more effectively than TAT? Or is this work just deferred?

Igal Zamir

Well, first of all, I would say the landing is such a small business of a portion of the TAT business. I don't know that we need to spend too much time on it. The second thing, I don't know if other people have the ability to obtain parts that we cannot obtain. I know about our business. And I believe that -- and like anything else, some customers may find that opportunities, some customers will wait and time will tell.

Matthew Chesler

And the next question is from Josh Sullivan at JonesTrading.

Joshua Sullivan

The new distribution agreement, since announcing it, does it open the aperture kind of on your thoughts of verticals and services you might be interested, particularly as you begin to think about a little bit more about M&A?

Igal Zamir

I think that in general, the trading and distribution is a very interesting component or segment in the industry from my perspective for the coming few years as long as the supply chain doesn't stabilize and if we look at what the majors are reporting and their projections for how long it takes to really stabilize the industry and catch up with demands of new fleets as long as these fundamental trends are there, USM and trading -- USM parts and trading is an essential portion of the ability to serve customers. And I believe it's here to remain for a few good years. So we're definitely interested in expanding opportunities in this direction.

Joshua Sullivan

And then the investment in inventory, I think you said much of it was growth focused, but is any of it strategic kind of supply chain buffer at this point?

Igal Zamir

Not necessarily. No, I think that when we -- when you sign a distribution agreement, then you need to make sure that you will have inventory to support your customers when they are calling you, whether it's airlines or other MRO shops, and you just need to make sure that you will have inventory. So if we had an inventory model that was supposed to support only our own shop, now we need to make sure that we will have inventory -- sustainable inventory to support our customers. And in an environment with lead times, extended lead times and sometimes months and months before you get parts, you need to make sure that you have enough in stock to support the demand.

Joshua Sullivan

And then just one last one. We get a lot of questions on APU demand cycle versus primary engine cycles. As we go into '27, do you have any thoughts you want to share just on the APU dynamics?

Igal Zamir

Well, I'm not an expert on the main engine side. But on the APUs, I think that in most cases, the APUs are maintained by demand. It's -- sometimes you take an APU because certain parts needs to be replaced on X amount of cycles. But in the vast majority of the cases, APU is removed when there is a need to repair something. So as long as the fleet continues flying, the APU demand will stay steady. There is less discretionary in terms of when to time the maintenance, if you will.

Matthew Chesler

The next question is from Ben Klieve at StoneX Benchmark.

Benjamin Klieve

Congratulations on a great quarter. All right. My God. All right. Are we there now?

Igal Zamir

Yes.

Benjamin Klieve

All right. Sorry. Third time the charm is on mute. I did it. Congratulations on a great quarter. Only one question for me regarding the parts and trading business. Obviously, the third quarter growth rate was just exceptional. I understand that that's -- that this is a lumpy business. And I'm curious about the degree to which kind of the expanded scope of this segment is -- do you think that expanded scope is going to allow for that to be a more kind of consistent business. So still some lumpiness, but maybe a little bit more consistent than it has been historically? Or am I reading too much into that?

Igal Zamir

I think that you can expect the volatility to continue or the fluctuation between the quarters. I wouldn't say volatility because these are very large deals. And it depends on availability of assets, finding as we move assets in the market, repairing them and closing the deal. And closing these deals that are typically larger by nature takes more time. So there will be -- there will continue to be fluctuation between the quarters. I think that when we look at year-to-date where we are, that's what we -- that's the base that we are planning on growing from.

Matthew Chesler

The next question is from Alexandra Mandery from Truist.

Alexandra Eleni Mandery

Nice results. I just had one question. So I understand the backlog shift is related to the removal of landing gear contracts, but have you seen any shift in backlog to maybe shorter cycle business?

Igal Zamir

Alex, I'm not sure that I understand the question. Can you please explain?

Alexandra Eleni Mandery

Yes. I guess maybe if customers are coming to you with maybe a last-minute repair versus maybe the longer contracts you have in backlog for APU and other agreements.

Igal Zamir

No, I don't see such a trend. So all in all, on the lending, we just decided to take a conservative approach and not to keep in the backlog, something that we are currently really struggling to serve. It relates, by the way, to only one of the lending gear lines. And so we removed it. Other than this, all the long-term agreements that we have, and we mentioned it in the past, represents roughly 60%, 65% of our revenue. And about 35%, 40% of the revenue still comes from noncontractual customers on the short-term -- based on the short-term need. But in terms of customer indications to how much they need from the backlog and their future view of consumption based on the long-term agreements, we don't see any change. I'm not aware of any change. I hope that answers.

Matthew Chesler

Next question is from Jaeson Schmidt at Lake Street.

Jaeson Schmidt

Just curious if you can update us on the defense business and how that order book is building into 2027.

Igal Zamir

So as a general TAT is a commercial company, we are a commercially focused company. We have some defense business, and we saw some growth on our defense sales this year. We have some opportunities for next year to continue on growing it. And that's basically -- obviously, defense represents some opportunities that we are trying to leverage and the segment is growing nicely, as well as the commercial, but there is nothing special that I would expect going into next year on the defense sector for us.

Matthew Chesler

Thank you. Let's take a call from the Q&A session here. And the question is, what level of initial potential do you see from the Honeywell distribution agreements for parts supporting the 200 to 250 platforms, given the increase in -- and then given the increase -- why don't we do that one? Here we go. Would you like me to repeat it?

Igal Zamir

Yes. So we are not publishing projections as we all know. I think that we need -- the distribution is not meaningful in revenue, but it has meaningful in profitability and supports the margin improvement and will continue supporting the margin improvements moving forward.

Matthew Chesler

Okay. There's another question around the industry environment. Given the increase in jet fuel prices, are you seeing the beginning of a trend toward higher aircraft retirement and scrappage rates compared to recent years?

Igal Zamir

No, actually, I don't see it at all. I think the opposite. If we look at demand for flights that is not -- as far as I can tell from what I'm seeing, the demand for -- passenger demand is not going down and passenger willing to absorb the increase in prices and combined with -- in combination with the major delays in delivering new fleets, I'm not sure that I can see how retirement is going to substantially grow moving forward.

Matthew Chesler

Great.

Igal Zamir

I didn't see -- and by the way, in all the research that we saw, we didn't see any meaningful or a new trend, if you will. We are still -- as far as I know, we are still at a retirement level that is lower than what the industry used to have before COVID.

Matthew Chesler

Ehud, there's a number of questions in here regarding the big improvement in the gross margin. So -- and I know we just addressed it during the prepared remarks, but can you provide any more color on what drove the improvement in the gross margin? And to what extent this is structural and sustainable going forward?

Ehud Ben-Yair

Yes, sure. So as I mentioned in my quote, obviously, first of all, is the mix of product. As I said, we shifted capacity to higher profitability product rather than the lower ones. And as I said, the demand is very strong. So the mix is going to stay very similar in the next couple of quarters. We improved several operational efficiencies during Q2 and Q3, and we saw the impact of those efficiencies in the quarter. And again, as I mentioned in the past calls, every time that we implement a certain cost initiative or an operational initiative, the project, it is sustained and stays for the future. So we had a couple of them in this quarter, and it will take us forward.

The distribution layer, as Igal added before, it's not high in the revenue, but very high in the profit. And again, the distribution is here to stay for a couple of more years, 10 years at least. So that's it. I believe that, as I said before, that the average profitability of the last 3 quarters is a very good representative of the profitability going forward.

Matthew Chesler

Thank you. There are other questions in here, but they were already asked by other callers. So I'm going to move past them. And Igal, I'm going to turn the call back to you for brief concluding remarks.

Igal Zamir

Just a quick second.

Matthew Chesler

It's just to wrap it up.

Igal Zamir

Yes. Give me one quick second. Kind of lost my notes. So anyway, maybe just to repeat what we said in the beginning, we are very excited about the continued progress of the company. We see it as a progression. We've been reporting. And if you think about it for 4 years now, we set up our strategy. We've been executing. We have several key pillars in the strategy that we are working on with the exception of one quarter at the beginning of this year where we had a more onetime supply chain crisis. If you look at the trend of the last 4 years, the company is growing. We are focused on leveraging the strategic strengths that we have to improve revenues. We have major efforts, as I mentioned in the past, on improving our margin and operational efficiencies that yield great results.

We want to focus on -- as a strategy, we focus on our customers and improving relationships or partnerships with the large OEMs in the industry. And all of this -- the combination of all of this reflects in the results. We are very optimistically looking at next year and what's ahead of us and the opportunities to continue and grow the business, definitely we finished 2026 on a very strong note. So thank you very much for joining us today, and looking forward to see you in the coming quarters.

Matthew Chesler

Thank you all for joining us today. You may now disconnect your lines.