Hexcel(US:HXL)2024-04-22 20:30PART I. FINANCIAL INFORMATION This section provides the company's unaudited financial statements and management's discussion for the first quarter of 2024 Condensed Consolidated Financial Statements (Unaudited) Hexcel's unaudited Q1 2024 financial statements show increased net sales but decreased operating and net income year-over-year Condensed Consolidated Balance Sheets As of March 31, 2024, total assets decreased to $2,821.2 million, primarily due to reduced cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $85.9 | $227.0 | | Total current assets | $789.7 | $864.2 | | Total assets | $2,821.2 | $2,918.5 | | Liabilities & Equity | | | | Total current liabilities | $288.6 | $315.9 | | Long-term debt | $714.6 | $699.4 | | Total liabilities | $1,189.1 | $1,202.0 | | Total stockholders' equity | $1,632.1 | $1,716.5 | Condensed Consolidated Statements of Operations Q1 2024 net sales increased to $472.3 million, but operating income decreased to $52.9 million due to lower gross margin Q1 2024 vs. Q1 2023 Statement of Operations (in millions, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net sales | $472.3 | $457.7 | | Gross margin | $118.2 | $127.7 | | Operating income | $52.9 | $62.8 | | Net income | $36.5 | $42.7 | | Diluted net income per common share | $0.43 | $0.50 | Condensed Consolidated Statements of Cash Flows Net cash used for operating activities improved to $7.0 million in Q1 2024, but significant share repurchases led to a $141.1 million net cash decrease Cash Flow Summary for Three Months Ended March 31 (in millions) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used for operating activities | $(7.0) | $(23.4) | | Net cash used for investing activities | $(28.7) | $(18.1) | | Net cash (used for) provided by financing activities | $(104.3) | $34.8 | | Net decrease in cash and cash equivalents | $(141.1) | $(6.3) | - The company repurchased $100.7 million of common stock in Q1 2024, compared to none in Q1 202315 Notes to Condensed Consolidated Financial Statements Detailed notes explain accounting policies, segment performance, debt, derivatives, contingencies, and share repurchase programs Total Debt Composition (in millions) | Debt Component | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Senior unsecured credit facility | $15.0 | - | | 4.7% senior notes due 2025 | $300.0 | $300.0 | | 3.95% senior notes due 2027 | $400.0 | $400.0 | | Total debt | $714.7 | $699.5 | - As of March 31, 2024, the company had $735.0 million in undrawn availability under its $750 million senior unsecured credit facility32 - In February 2024, the Board approved a new $300 million share repurchase plan, supplementing the existing 2018 plan During Q1 2024, the company repurchased 1,397,755 shares for $100.7 million6970 - The company is involved in environmental litigation related to the Lower Passaic River A Consent Decree for a $150 million settlement involving Hexcel and 83 other parties was lodged with the court in December 2022, but approval is pending6063 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial results, noting increased net sales driven by aerospace, but a decline in operating income due to lower gross margin Results of Operations Q1 2024 net sales increased 3.2% to $472.3 million, driven by aerospace, but operating income declined 15.8% due to lower gross margin Q1 2024 Financial Highlights vs. Q1 2023 (in millions) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $472.3 | $457.7 | 3.2% | | Operating income | $52.9 | $62.8 | (15.8)% | | Net income | $36.5 | $42.7 | (14.5)% | Net Sales by Market (in millions) | Market | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Commercial Aerospace | $299.3 | $284.5 | 5.2% | | Space & Defense | $139.1 | $126.2 | 10.2% | | Industrial | $33.9 | $47.0 | (27.9)% | - Commercial Aerospace growth was driven by strong Boeing 787 sales, while Space & Defense strength came from the F-35 and A400M programs The Industrial sales decline was broad-based across all sub-markets8485 - Gross margin fell to 25.0% in Q1 2024 from 27.9% in Q1 2023, as the prior year benefited from a more favorable sales mix and absorption87 Financial Condition and Liquidity Q1 2024 saw a significant decrease in cash to $85.9 million due to share repurchases, though liquidity is supported by credit facility availability - Cash on hand was $85.9 million at March 31, 2024, down from $227.0 million at December 31, 202396 - Net cash used for operating activities was $7.0 million, an improvement from a $23.4 million use in Q1 2023, primarily due to better working capital management100 - Financing activities used $104.3 million, dominated by $100.7 million in share repurchases and $12.6 million in dividend payments102 - The company has no significant required debt repayments until August 2025 The Board declared a quarterly dividend of $0.15 per share in April 20249899 Non-GAAP Financial Measures Non-GAAP measures for Q1 2024 show adjusted operating income of $54.1 million and negative free cash flow of $(35.7) million Reconciliation of GAAP to Adjusted Net Income (in millions, except per share) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | GAAP net income | $36.5 | $42.7 | | Other operating expense, net of tax | $0.9 | $0.2 | | Adjusted net income (non-GAAP) | $37.4 | $42.9 | | GAAP diluted net income per share | $0.43 | $0.50 | | Adjusted diluted net income per share (non-GAAP) | $0.44 | $0.50 | Free Cash Flow (non-GAAP, in millions) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash used for operating activities | $(7.0) | $(23.4) | | Less: Capital expenditures | $(28.7) | $(18.1) | | Free cash flow (non-GAAP) | $(35.7) | $(41.5) | Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk have occurred since the 2023 Annual Report on Form 10-K - There were no material changes in market risk since the 2023 year-end report115 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2024116 - No changes in internal control over financial reporting occurred in Q1 2024 that have materially affected, or are reasonably likely to materially affect, internal controls117 PART II. OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, equity sales, and exhibits Legal Proceedings Information on legal proceedings, including the Lower Passaic River matter, is incorporated by reference from Note 11 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 11 of the financial statements118 Risk Factors No material changes to the company's risk factors have occurred since the 2023 Annual Report on Form 10-K - There have been no material changes in the Company's risk factors from the 2023 Form 10-K119 Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2024, Hexcel repurchased 1,397,755 shares for $100.7 million under its augmented share repurchase programs - On February 19, 2024, the Board approved a new $300 million share repurchase plan120 Share Repurchase Activity for Q1 2024 | Period | Total Shares Purchased | Average Price Paid per share | Total Cost (Millions) | | :--- | :--- | :--- | :--- | | Feb 1 - Feb 29, 2024 | 1,233,912 | $71.10 | ~$87.7 | | Mar 1 - Mar 31, 2024 | 163,843 | $74.86 | ~$12.3 | | Total Q1 2024 | 1,397,755 | $71.54 | $100.7 | - As of March 31, 2024, approximately $386.4 million remained available for repurchases under the company's Share Repurchase Program121 Exhibits This section lists exhibits filed with the Form 10-Q, including executive agreements, SOX certifications, and Inline XBRL financial data - Exhibits filed include transition and employment agreements for executive officers, Sarbanes-Oxley certifications, and Inline XBRL data files125