Hexcel(HXL) - 2022 Q2 - Quarterly Report

Part I: Financial Information Condensed Consolidated Financial Statements This section presents Hexcel Corporation's unaudited condensed consolidated financial statements, highlighting significant year-over-year performance improvement Condensed Consolidated Balance Sheets 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 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 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 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] | 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][35][36] - 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] Management's Discussion and Analysis (MD&A) 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 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] - The Commercial Aerospace market recovery continued into Q2 2022, though challenges from global logistics, supply chains, and inflationary pressures persist[77] - The company is monitoring the Russia-Ukraine conflict for potential impacts on inflation, energy costs, and raw material availability[78] Results of Operations 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] - 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] Financial Condition and Liquidity 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][100] - 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][115] - 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] - The Board of Directors declared a quarterly dividend of $0.10 per share on July 25, 2022[103] Non-GAAP Financial Measures 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 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] Controls and Procedures 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] - No material changes in internal control over financial reporting were identified during the second quarter of 2022[123] Part II: Other Information Legal Proceedings 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][63] - 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] Risk Factors 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] Exhibits 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]