UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2023 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 1-8472 Hexcel Corporation (Exact name of registrant as specified in its charter) (State or Other Jurisdiction of Incorporation or Organization) ...

Part I [Business Overview](index=4&type=section&id=Item%201%20Business) Hexcel leads in advanced lightweight composites for aerospace and industrial markets, operating in two segments, facing supply chain and inflation issues - Hexcel Corporation is a global leader in advanced lightweight composites technology, serving commercial aerospace, space & defense, and industrial markets[16](index=16&type=chunk) - The company operates with two reportable segments: Composite Materials and Engineered Products[18](index=18&type=chunk) - Commercial Aerospace market showed signs of recovery in H2 2021 and continued through 2022, despite ongoing challenges from global logistics, supply chains, and inflationary pressures[19](index=19&type=chunk) [Composite Materials Segment](index=4&type=section&id=Composite%20Materials) This segment manufactures carbon fibers, prepregs, and other advanced materials for aerospace and industrial applications, contributing **$1,279.7 million** (80% of total) to 2022 net sales - The Composite Materials segment manufactures and markets carbon fibers, fabrics, specialty reinforcements, prepregs, structural adhesives, honeycomb, and pultruded profiles[22](index=22&type=chunk) Composite Materials Net Sales to Third-Party Customers | Year | Net Sales (Millions USD) | % of Total Net Sales | | :--- | :--- | :--- | | 2022 | $1,279.7 | ~80% | | 2021 | $1,019.4 | ~80% | | 2020 | $1,185.9 | ~80% | [Engineered Products Segment](index=7&type=section&id=Engineered%20Products) This segment manufactures composite structures and precision machined honeycomb parts, primarily for aerospace, generating **$298.0 million** (20% of total) in 2022 net sales - The Engineered Products segment manufactures and markets composite structures and precision machined honeycomb parts, including 3D printed parts and RF/EMI materials, primarily for the aerospace industry[40](index=40&type=chunk) Engineered Products Net Sales to Third-Party Customers | Year | Net Sales (Millions USD) | % of Total Net Sales | | :--- | :--- | :--- | | 2022 | $298.0 | ~20% | | 2021 | $305.3 | ~20% | | 2020 | $316.5 | ~20% | - The segment holds a 50% ownership interest in a Malaysian joint venture, Aerospace Composites Malaysia Sdn. Bhd. (ACM), with Boeing Worldwide Operations Limited[42](index=42&type=chunk) [Significant Customers](index=8&type=section&id=Significant%20Customers) Hexcel's sales are concentrated with major aerospace customers, with Airbus and its subcontractors accounting for **38%** of 2022 net sales Net Sales to Significant Customers | Customer | 2022 Net Sales (%) | 2021 Net Sales (%) | 2020 Net Sales (%) | | :--- | :--- | :--- | :--- | | Airbus & subcontractors | 38% | 33% | 33% | | Boeing & subcontractors | 14% | 16% | 19% | [Markets](index=8&type=section&id=Markets) Hexcel serves Commercial Aerospace (**58%** of 2022 net sales), Space & Defense (**29%**), and Industrial (**13%**), with Commercial Aerospace being the largest and Industrial declining due to wind energy Net Sales by Market (2022) | Market | % of 2022 Net Sales | | :--- | :--- | | Commercial Aerospace | 58% | | Space & Defense | 29% | | Industrial | 13% | - Commercial Aerospace demand is driven by airline passenger traffic and aircraft replacement rates, with each new generation of aircraft and engines utilizing increasing quantities of advanced composites[48](index=48&type=chunk)[52](index=52&type=chunk)[54](index=54&type=chunk) - Space & Defense market demand is primarily a function of military aircraft procurement and space programs, with the F-35 Lightning and CH-53K being significant programs[57](index=57&type=chunk)[59](index=59&type=chunk) - Industrial market sales declined in 2022, primarily due to lower wind energy sales, despite growth in recreation and other industrial applications; the company closed its Tianjin, China wind facility in 2022[61](index=61&type=chunk) [Backlog](index=10&type=section&id=Backlog) Hexcel's twelve-month order backlog is not a meaningful trend indicator due to multi-year contracts specifying requirements rather than specific quantities or delivery dates - Twelve-month order backlog is not a meaningful trend indicator as multi-year contracts with major customers specify proportions of requirements and terms, not specific quantities or delivery dates[62](index=62&type=chunk) [Raw Materials and Production Activities](index=10&type=section&id=Raw%20Materials%20and%20Production%20Activities) Hexcel's vertically integrated operations produce carbon fiber, but reliance on limited raw material suppliers led to supply disruptions and cost increases in 2021 and 2022 - Hexcel's manufacturing operations are vertically integrated, producing carbon fiber from polyacrylonitrile precursor (PAN) for internal use and external sales[63](index=63&type=chunk)[64](index=64&type=chunk) - The company is highly dependent on a limited number of suppliers for key raw materials, leading to supply disruptions and cost increases in 2021 and 2022 due to global transportation issues, the COVID-19 pandemic, and market volatility[67](index=67&type=chunk)[68](index=68&type=chunk) [Research and Technology; Patents and Know-How](index=11&type=section&id=Research%20and%20Technology%3B%20Patents%20and%20Know-How) Hexcel maintains global Research and Technology (R&T) centers, including a new facility in Salt Lake City, Utah, to develop next-generation composite technology, protected by patents and expertise - Hexcel operates global Research and Technology (R&T) centers, with a new, largest center recently completed in Salt Lake City, Utah, to support next-generation composite technology development[69](index=69&type=chunk)[70](index=70&type=chunk) - The company's products rely on expertise in materials science, textiles, process engineering, and polymer chemistry, protected by patents and know-how, which are actively enforced[71](index=71&type=chunk) [Environmental Matters](index=11&type=section&id=Environmental%20Matters) Hexcel is committed to reducing its environmental impact through operational efficiency and renewable power, while complying with U.S. and international environmental laws - Hexcel is committed to reducing its environmental impact, including carbon footprint, air and water emissions, and waste, through operational efficiency and increasing use of renewable power (e.g., on-site solar projects)[72](index=72&type=chunk)[73](index=73&type=chunk) - The company is subject to U.S. and international environmental and health and safety laws, with increasing global emphasis on emissions reduction supporting demand for its advanced composite light weighting solutions[74](index=74&type=chunk)[75](index=75&type=chunk) [Other Regulatory Matters](index=12&type=section&id=Other%20Regulatory%20Matters) Hexcel must comply with U.S. government regulations and numerous international laws, including export controls and trade restrictions, which can impose compliance costs and affect competitiveness - Hexcel must comply with U.S. government Federal Acquisition Regulations, export controls, and security requirements, with non-compliance potentially leading to fines, penalties, and business loss[77](index=77&type=chunk) - Significant international operations expose the company to numerous global laws and regulations, including export controls, sanctions, customs, and local trade rules, which can impose compliance costs and impact competitiveness[78](index=78&type=chunk) [Sales and Marketing](index=13&type=section&id=Sales%20and%20Marketing) Hexcel sells and markets its products globally through a dedicated staff, independent distributors, and various sales representation offices - Hexcel sells and markets its products globally through a staff of salaried marketing managers, product managers, and sales personnel, as well as independent authorized distributors and sales offices[79](index=79&type=chunk) [Competition](index=13&type=section&id=Competition) Hexcel competes globally in advanced composites based on technology, performance, and price, benefiting from significant barriers to entry like intellectual property and specialized expertise - Hexcel competes globally in advanced composites against other companies and substitute materials (metal, structural foam, wood), with competition based on technology, product performance, delivery, service, price, and customer preference[80](index=80&type=chunk) - Significant barriers to entry in Hexcel's markets include intellectual property, specialized expertise, extensive qualification databases, global manufacturing capacity, and long-term customer relationships[81](index=81&type=chunk) [Human Capital](index=13&type=section&id=Human%20Capital) Hexcel prioritizes attracting, developing, and retaining skilled employees, fostering a values-aligned culture, and ensuring health and safety for its 5,328 global employees, many of whom are unionized - Hexcel focuses on attracting, developing, and retaining skilled talent, guided by corporate values, and invests in training, professional development, and performance management[82](index=82&type=chunk) - Employee health and safety is a top priority, with a global safety culture, regular training, robust systems, and ISO14001:2015 and ISO 45001:2018 certifications[83](index=83&type=chunk) - As of December 31, 2022, Hexcel employed 5,328 full-time employees and contract workers globally, with approximately 22% of U.S. employees and the majority in Europe represented by unions or works' councils[85](index=85&type=chunk) [Other Information](index=14&type=section&id=Other%20Information) Hexcel's website provides free access to SEC filings, but this information is not incorporated by reference into the Annual Report on Form 10-K - Hexcel's website (www.hexcel.com) provides free access to SEC filings (10-Ks, 10-Qs, 8-Ks), but website content is not incorporated by reference into the Annual Report on Form 10-K[86](index=86&type=chunk) [Forward-Looking Statements](index=14&type=section&id=Forward-Looking%20Statements) This report contains forward-looking statements based on uncertain forecasts

Hexcel Corporation (NYSE:HXL) Q4 2022 Earnings Conference Call January 26, 2023 10:00 AM ET Company Participants Patrick Winterlich - Chief Financial Officer Nick Stanage - Chairman, President and CEO Kurt Goddard - Vice President, Investor Relations Conference Call Participants David Strauss - Barclays Pete Skibitski - Alembic Global Ron Epstein - Bank of America Myles Walton - Wolfe Research Robert Spingarn - Melius Research Kristine Liwag - Morgan Stanley Gautam Khanna - Cowen Mike Sison - Wells Fargo Mi ...

2 ©2023 Hexcel. All rights reserved. Leader in markets undergoing secular growth Broadest aerospace composite solution portfolio OUR HEXCEL PURPOSE | --- | --- | --- | |-------|----------------------------------------|------------------------------------------------------------------------------| | | | Leading, sole source positions in key markets with high barriers to entry | | • | INNOVATIVE SOLUTIONS | | | • | PROVEN EXECUTION | Sustainable competitive advantage | | | | | | • | EXPANDING MARGINS ON MARKE ...

Financial Data and Key Metrics Changes - Third quarter sales reached almost $365 million, representing a 12% increase in constant currency compared to Q3 2021 [10] - Adjusted diluted EPS for the third quarter was $0.33, up from $0.13 in the previous year [10] - Gross margin improved to 22.4% from 19.8% year-over-year, reflecting operating leverage despite inflationary pressures [22] - Year-to-date total sales increased by almost 22% year-over-year in constant currency, with EPS of $0.88 compared to $0.11 last year [16] Business Line Data and Key Metrics Changes - Commercial aerospace sales were approximately $209 million, up 26.5% in constant currency, driven by growth in Airbus A350 and A320 NEO programs [10][19] - Space and Defense sales totaled about $109 million, remaining flat in constant currency, but year-to-date sales increased nearly 5% [12][20] - Industrial sales decreased by over 8% in constant currency, primarily due to lower wind energy sales, despite growth in other industrial markets [21] Market Data and Key Metrics Changes - Commercial aerospace accounted for approximately 57% of total third quarter sales, while Space and Defense represented 30% [19] - The industrial segment comprised 13% of total sales, with wind energy making up around 20% of industrial sales [21] Company Strategy and Development Direction - The company aims to meet strong market demand, particularly in aerospace, as passenger numbers recover to pre-pandemic levels [6][39] - Hexcel is focused on operational excellence, streamlining processes, and driving productivity to enhance customer performance [9] - The company is committed to innovation in lightweight composite materials, positioning itself to capitalize on growth opportunities in aerospace and defense [8][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of the aerospace market and the continued demand for lightweight composites [6][39] - The company is preparing for strong growth in 2023, with expectations of increased production rates from major customers [39][76] - Management acknowledged challenges such as inflationary pressures and supply chain constraints but remains focused on operational efficiency [9][22] Other Important Information - The company declared a quarterly dividend of $0.10, payable to stockholders of record as of November 4 [32] - Capital expenditures for the first nine months of 2022 were $49.1 million, reflecting higher maintenance and growth CapEx [29] - Free cash flow for the first nine months of 2022 was negative $1.9 million, primarily due to increased inventory levels [30] Q&A Session Summary Question: Free cash flow guidance and working capital - Management explained the decision to build inventory levels as a buffer against supply chain constraints, which is expected to strengthen free cash flow in 2023 [46][47] Question: Boeing product intake and sales pressure - Management confirmed that while Boeing's MAX program is ramping up, the 787 production remains slow, impacting sales [52][53] Question: Industrial segment outlook for 2023 - Management indicated that the industrial segment, particularly high-end automotive and recreation, is expected to remain strong despite potential economic downturns [61][62] Question: Labor challenges and training - Management acknowledged the ongoing challenges in training new hires but noted improvements in recruitment processes [77][78] Question: Seasonality impact on sales - Management clarified that Q3 sales typically decline due to seasonal factors in Europe, which returned to a more standard pattern post-pandemic [90] Question: Currency hedging and its impact - Management discussed the benefits of their hedging strategy, which is expected to provide margin stability moving into 2023 [105][106]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201.%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) The unaudited condensed consolidated financial statements reflect significant performance improvement for the nine months ended September 30, 2022, with increased sales and a shift to net income [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2022, total assets slightly decreased, driven by changes in property, plant, and equipment, while current assets increased and equity saw a modest decline Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $90.9 | $127.7 | | Inventories, net | $303.1 | $245.7 | | Total current assets | $685.2 | $616.3 | | Net property, plant and equipment | $1,629.3 | $1,746.1 | | **Total assets** | **$2,775.7** | **$2,819.4** | | **Liabilities & Equity** | | | | Total current liabilities | $283.7 | $247.6 | | Long-term debt | $797.0 | $822.4 | | **Total liabilities** | **$1,330.7** | **$1,333.9** | | **Total stockholders' equity** | **$1,445.0** | **$1,485.5** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported significant improvements in net sales and net income for both Q3 and the nine months ended September 30, 2022, reversing a prior-year net loss Key Operating Results (in millions, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $364.7 | $333.8 | $1,148.3 | $964.4 | | Gross margin | $81.8 | $66.0 | $258.0 | $181.0 | | Operating income | $40.8 | $22.8 | $134.7 | $28.8 | | Net income (loss) | $26.8 | $9.0 | $89.3 | $(2.8) | | Diluted EPS | $0.31 | $0.11 | $1.05 | $(0.03) | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities decreased for the nine months ended September 30, 2022, while investing and financing activities saw increased cash usage, impacting overall cash balance Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $56.4 | $64.2 | | Net cash used for investing activities | $(36.6) | $(15.0) | | Net cash used for financing activities | $(48.6) | $(44.8) | | **Net (decrease) increase in cash** | **$(36.8)** | **$2.5** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, significant transactions like asset sales, revenue by market, debt structure, derivative instruments, and contingencies including environmental liabilities - The company sold its Dublin, California facility, receiving **$21.2 million** in net proceeds and recording a gain of approximately **$19.4 million**[22](index=22&type=chunk) Revenue by Market (Nine Months Ended Sep 30, in millions) | Market | 2022 | 2021 | | :--- | :--- | :--- | | Commercial Aerospace | $655.6 | $468.5 | | Space & Defense | $338.7 | $329.0 | | Industrial | $154.0 | $166.9 | | **Total Net Sales** | **$1,148.3** | **$964.4** | Total Debt Composition (in millions) | Component | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Senior unsecured credit facility | $99.0 | $125.0 | | 4.7% senior notes - due 2025 | $300.0 | $300.0 | | 3.95% senior notes - due 2027 | $400.0 | $400.0 | | **Total debt** | **$797.3** | **$823.3** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the continued recovery in Commercial Aerospace driving sales growth, significant operating income improvement despite global challenges, and the company's solid liquidity position - The Commercial Aerospace market recovery continued into Q3 2022, with growth in air travel and aircraft build rates, despite ongoing global logistics, supply chain, and inflationary pressures[79](index=79&type=chunk) - The company monitors the Russia/Ukraine conflict, noting its impact on the global economy through increased inflation, energy costs, and constrained raw material availability[80](index=80&type=chunk) Financial Highlights (Nine Months Ended Sep 30) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $1,148.3M | $964.4M | 19.1% | | Operating income | $134.7M | $28.8M | 367.7% | | Net income (loss) | $89.3M | $(2.8)M | 3,289.3% | | Diluted EPS | $1.05 | $(0.03) | 3,600.0% | [Results of Operations](index=18&type=section&id=Results%20of%20Operations) Net sales grew significantly for the first nine months of 2022, primarily driven by Commercial Aerospace, leading to improved gross margin and a substantial increase in operating income Net Sales by Market (Nine Months Ended Sep 30, in millions) | Market | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Commercial Aerospace | $655.6 | $468.5 | 39.9% | | Space & Defense | $338.7 | $329.0 | 2.9% | | Industrial | $154.0 | $166.9 | (7.7)% | | **Total** | **$1,148.3** | **$964.4** | **19.1%** | - Gross margin improved to **22.5%** for the first nine months of 2022 from **18.8%** in 2021, driven by higher sales and improved capacity utilization[92](index=92&type=chunk) - Operating income increased due to higher sales, strong gross margins, a gain from the Dublin, California facility sale, and reduced restructuring costs[96](index=96&type=chunk) [Financial Condition and Liquidity](index=21&type=section&id=Financial%20Condition%20and%20Liquidity) The company maintains a strong financial condition with solid liquidity, reduced debt, reinstated dividends, and increased capital expenditures for strategic growth projects - As of September 30, 2022, the company held **$90.9 million** in cash and **$651 million** in undrawn credit facility availability, with no significant debt repayments due until 2024[101](index=101&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - Net cash from operating activities decreased to **$56.4 million** due to **$115.0 million** in working capital use to support higher sales[107](index=107&type=chunk) - Capital expenditures increased to **$58.3 million** for the first nine months of 2022, primarily for a new R&T center in Utah and facility expansion in Morocco[109](index=109&type=chunk) - The quarterly dividend of **$0.10 per share** was reinstated, with a new dividend declared payable in November 2022[106](index=106&type=chunk)[110](index=110&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes to its market risk profile from the 2021 Annual Report, aside from the ongoing impacts of the COVID-19 pandemic and the Russia/Ukraine conflict - There have been no material changes in market risk from the year-end 2021 report, aside from the continued impacts of COVID-19 and the Russia/Ukraine conflict[123](index=123&type=chunk) [Controls and Procedures](index=24&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the third quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[124](index=124&type=chunk) - No material changes in internal control over financial reporting occurred during Q3 2022[125](index=125&type=chunk) [PART II. OTHER INFORMATION](index=25&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=25&type=section&id=ITEM%201.%20Legal%20Proceedings) Information on legal proceedings, including environmental matters, is incorporated by reference from Note 11, with management not expecting a material adverse impact - Details on legal proceedings, including commercial and environmental matters, are provided in Note 11 of the financial statements[64](index=64&type=chunk)[126](index=126&type=chunk) [Risk Factors](index=25&type=section&id=ITEM%201A.%20Risk%20Factors) No material changes to the company's risk factors have occurred since the 2021 Annual Report on Form 10-K, and investors should consider previously disclosed factors - There have been no material changes in the Company's risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[127](index=127&type=chunk) [Exhibits](index=26&type=section&id=ITEM%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in Inline XBRL format - Exhibits filed with the report include CEO/CFO certifications and financial data in Inline XBRL format[130](index=130&type=chunk)

Hexcel Corporation (NYSE:HXL) Q2 2022 Earnings Conference Call July 26, 2022 10:00 AM ET Company Participants Patrick Winterlich - Chief Financial Officer Nick Stanage - Chairman, Chief Executive Officer & President Conference Call Participants Sheila Kahyaoglu - Jefferies David Strauss - Barclays Ron Epstein - Bank of America Michael Ciarmoli - Truist Securities John McNulty - BMO Capital Markets Pete Skibitski - Alembic Global Robert Spingarn - Melius Research Richard Safran - Seaport Research Partners Pa ...

HEXCEL Investor Briefing July 2022 Risks, | --- | --- | |-----------------|-------| | | | | | | | Uncertainties | | | and Other | | | Factors with | | | Respect to | | | Forward-Looking | | | Statements | | | Disclaimer | | Certain statements contained in this presentation constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements that are not of historical fact constitute "forward-looking statements" and accordingly, involve estimates ...

Part I: Financial Information [Condensed Consolidated Financial Statements](index=3&type=section&id=ITEM%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents Hexcel Corporation's unaudited condensed consolidated financial statements, highlighting significant year-over-year performance improvement [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2022, total assets and liabilities remained at **$2,819.4 million**, with current assets increasing by **$75.6 million** and stockholders' equity slightly decreasing | (In millions) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total current assets** | $691.9 | $616.3 | | **Total assets** | **$2,819.4** | **$2,819.4** | | **Total current liabilities** | $271.2 | $247.6 | | **Total liabilities** | $1,339.1 | $1,333.9 | | **Total stockholders' equity** | $1,480.3 | $1,485.5 | | **Total liabilities and stockholders' equity** | **$2,819.4** | **$2,819.4** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported strong year-over-year growth, with Q2 2022 net sales increasing **22.7%** to **$393.0 million** and net income surging to **$44.7 million** | (In millions, except per share data) | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $393.0 | $320.3 | $783.6 | $630.6 | | **Operating income** | $63.8 | $16.2 | $93.9 | $6.0 | | **Net income (loss)** | $44.7 | $2.2 | $62.5 | $(11.8) | | **Diluted net income (loss) per share** | $0.53 | $0.03 | $0.74 | $(0.14) | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities for H1 2022 decreased to **$18.3 million** due to increased working capital, while investing activities used **$16.2 million** | (In millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $18.3 | $38.9 | | **Capital expenditures** | $(37.9) | $(9.2) | | **Proceeds from sale of asset** | $21.2 | - | | **Net cash used for investing activities** | $(16.2) | $(9.2) | | **Net cash used for financing activities** | $(26.6) | $(16.6) | | **Net (decrease) increase in cash** | $(28.5) | $12.0 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of financial statement items, including revenue disaggregation, segment performance, debt structure, and environmental liabilities - In Q2 2022, the company sold its Dublin, California facility, receiving approximately **$21.2 million** in net proceeds and recording a gain of **$19.4 million**[21](index=21&type=chunk) | Sales by Market (In millions) | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | | **Commercial Aerospace Sales** | $446.5 | $301.3 | | **Space & Defense Sales** | $230.1 | $218.6 | | **Industrial Sales** | $107.0 | $110.7 | - Total debt stood at **$812.5 million** as of June 30, 2022, with **$636 million** of undrawn availability under its **$750 million** senior unsecured credit facility[33](index=33&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - Aggregate environmental-related accruals increased to **$7.1 million** as of June 30, 2022, from **$2.1 million** at year-end 2021, primarily related to the Lower Passaic River site[67](index=67&type=chunk) [Management's Discussion and Analysis (MD&A)](index=18&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial results, highlighting a strong recovery driven by the Commercial Aerospace market, improved liquidity, and dividend reinstatement [Business and Financial Overview](index=18&type=section&id=Business%20and%20Financial%20Overview) Hexcel manufactures advanced composite materials, experiencing Commercial Aerospace recovery despite ongoing challenges from logistics, supply chains, and inflation - The company operates in a single industry, Advanced Composites, with two reportable segments: Composite Materials and Engineered Products[76](index=76&type=chunk) - The Commercial Aerospace market recovery continued into Q2 2022, though challenges from global logistics, supply chains, and inflationary pressures persist[77](index=77&type=chunk) - The company is monitoring the Russia-Ukraine conflict for potential impacts on inflation, energy costs, and raw material availability[78](index=78&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) The company reported significant year-over-year growth, with Q2 2022 net sales up **22.7%** and operating income increasing to **$63.8 million** | Sales by Market (Q2 2022 vs Q2 2021) | % Change | % Change (Constant Currency) | | :--- | :--- | :--- | | **Commercial Aerospace** | +48.1% | +49.5% | | **Space & Defense** | +4.7% | +7.0% | | **Industrial** | -10.4% | -3.5% | - Gross margin improved to **22.8%** in Q2 2022 from **19.3%** in Q2 2021, primarily due to higher sales and greater capacity utilization leading to improved cost absorption[89](index=89&type=chunk) - Q2 2022 operating income was **$63.8 million** (**16.2%** of sales) compared to **$16.2 million** (**5.1%** of sales) in Q2 2021, driven by higher sales, strong gross margins, and an asset sale gain[93](index=93&type=chunk) [Financial Condition and Liquidity](index=21&type=section&id=Financial%20Condition%20and%20Liquidity) The company maintains a solid liquidity position with **$99.2 million** in cash and **$636 million** available credit, despite negative free cash flow in H1 2022 - As of June 30, 2022, the company had **$99.2 million** in cash and **$636 million** in undrawn availability under its **$750 million** credit facility[98](index=98&type=chunk)[100](index=100&type=chunk) - Free cash flow (non-GAAP) was negative **$19.6 million** for H1 2022, compared to positive **$29.7 million** in H1 2021, due to higher working capital usage and capital expenditures[104](index=104&type=chunk)[115](index=115&type=chunk) - Capital expenditures increased to **$37.9 million** in H1 2022 from **$9.2 million** in H1 2021, driven by construction projects in Salt Lake City, Utah, and Morocco[105](index=105&type=chunk) - The Board of Directors declared a quarterly dividend of **$0.10 per share** on July 25, 2022[103](index=103&type=chunk) [Non-GAAP Financial Measures](index=22&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures to provide insight into ongoing operational performance, excluding items like asset sale gains and restructuring costs | (In millions) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | **GAAP operating income** | $63.8 | $16.2 | $93.9 | $6.0 | | **Adjusted operating income (non-GAAP)** | $44.7 | $19.3 | $75.8 | $21.2 | | (per share) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | **GAAP diluted EPS** | $0.53 | $0.03 | $0.74 | $(0.14) | | **Adjusted diluted EPS (non-GAAP)** | $0.33 | $0.08 | $0.55 | $(0.02) | [Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in its market risk profile from the 2021 Annual Report, except for ongoing effects of COVID-19 and the Russia-Ukraine conflict - There have been no material changes in market risk from the 2021 Form 10-K, other than the continued broad effects of COVID-19 and the Russia-Ukraine conflict[121](index=121&type=chunk) [Controls and Procedures](index=24&type=section&id=ITEM%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2022[122](index=122&type=chunk) - No material changes in internal control over financial reporting were identified during the second quarter of 2022[123](index=123&type=chunk) Part II: Other Information [Legal Proceedings](index=25&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is involved in routine litigation and environmental matters, including its designation as a Potentially Responsible Party for the Lower Passaic River Superfund site - The company is a Potentially Responsible Party (PRP) in the environmental remediation of the Lower Passaic River Superfund site[62](index=62&type=chunk)[63](index=63&type=chunk) - As of June 30, 2022, aggregate environmental-related accruals were **$7.1 million**, a significant increase from **$2.1 million** at the end of 2021[67](index=67&type=chunk) [Risk Factors](index=25&type=section&id=ITEM%201A.%20Risk%20Factors) The company states no material changes to risk factors from its 2021 Annual Report on Form 10-K, directing investors to that filing for comprehensive discussion - There have been no material changes in the Company's risk factors from the Annual Report on Form 10-K for the year ended December 31, 2021[125](index=125&type=chunk) [Exhibits](index=26&type=section&id=ITEM%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including management compensation agreements and required CEO/CFO certifications - The report includes required certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002[129](index=129&type=chunk)

Financial Data and Key Metrics Changes - Hexcel reported adjusted first quarter diluted EPS of $0.22 and sales of $391 million, representing a year-over-year revenue increase of 26% compared to $310 million in the previous year [10][18] - Gross margin for the first quarter was 22.2%, up from 17.1% in the first quarter of 2021, marking the best gross margin percentage performance since Q1 2020 [34] - Adjusted operating income in the first quarter was $31.1 million, or 8% of sales, with selling, general and administrative expenses decreasing to 14.2% of sales from 16.5% in the prior year [36][34] Business Line Data and Key Metrics Changes - Commercial Aerospace sales were $219 million, up almost 49% year-over-year in constant currency, driven by strengthening narrowbody sales and higher A350 sales [19][31] - Space & Defense sales totaled $118 million, representing a 7% increase in constant currency, with strong growth in military platforms [23][32] - Industrial sales increased more than 9% in constant currency to $54 million, supported by strength in recreation, automotive, and consumer electronics markets [26][33] Market Data and Key Metrics Changes - Commercial Aerospace accounted for approximately 56% of total first quarter sales, with significant growth in narrow-bodies and business jets [31] - Space & Defense represented 30% of first quarter sales, with strong demand anticipated from platforms like the F-35 and CH-53K [32][25] - Industrial comprised 14% of first quarter sales, with wind energy demand lower but offset by growth in other sectors [33][26] Company Strategy and Development Direction - Hexcel is focused on operational efficiency and cash management while expanding manufacturing capabilities, including a facility in Morocco to double production capacity [20][27] - The company is well-positioned to capitalize on emerging markets such as Urban Air Mobility (UAM) and Advanced Air Mobility (AAM) [22] - Hexcel aims to maintain double-digit adjusted operating margins for 2022 while managing inflationary pressures and supply chain challenges [37][67] Management's Comments on Operating Environment and Future Outlook - Management noted that the effects of the pandemic are lessening, with increasing demand and a solid foundation for growth [9][10] - The company is facing inflationary pressures but has protections in place through long-term supply contracts [14][67] - Management remains confident in achieving the 2022 guidance of $1.5 billion to $1.63 billion in sales and adjusted diluted EPS of $1 to $1.24 [27][46] Other Important Information - Free cash flow for Q1 2022 was negative $39.9 million, with working capital increasing to support higher sales [41] - Capital expenditures were $11.1 million in Q1 2022, reflecting investments in capacity expansion and innovation centers [42] - The Board declared a $0.10 quarterly dividend, with a payment date of May 13 [44] Q&A Session Summary Question: Sequential growth in Commercial Aerospace - Management indicated steady growth in A320 and A350 programs, with expectations for continued growth driven by these platforms [51][52] Question: Risks in the supply chain - Management acknowledged holding more inventory than normal to mitigate supply chain disruptions, but remains confident in managing these challenges [59][60] Question: Inflation impact on margins - Management confirmed that while inflationary pressures exist, long-term contracts provide some protection, and they aim for double-digit operating margins [67][68] Question: Capital deployment priorities - Management emphasized organic investments as a priority, with share buybacks and M&A opportunities also being considered [75][112] Question: Disconnects among customers - Management stated that there is good alignment among customers regarding build rates and inventory levels, with no significant disconnects observed [126]