Hexcel(HXL) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) 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 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 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 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 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] 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 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] - 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] 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 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] - Operating income increased due to higher sales, strong gross margins, a gain from the Dublin, California facility sale, and reduced restructuring costs[96] Financial Condition and Liquidity 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][103][104] - Net cash from operating activities decreased to $56.4 million due to $115.0 million in working capital use to support higher sales[107] - 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] - The quarterly dividend of $0.10 per share was reinstated, with a new dividend declared payable in November 2022[106][110] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during Q3 2022[125] PART II. OTHER INFORMATION Legal Proceedings 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][126] Risk Factors 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] Exhibits 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]